Stocks of Lululemon Jump Following Stock Buybacks and Profit Forecasts

Shares of Lululemon Athletica surged in after-hours trading on Wednesday following the announcement of a $1 billion increase to its stock-buyback program and an improved full-year profit forecast.

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Lululemon (LULU) now anticipates earnings per share for the year to be between $14.27 and $14.47, up from the previous projection of $14 to $14.20. The company maintained its sales forecast of $10.7 billion to $10.8 billion.

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However, the second-quarter forecast was slightly below expectations. Lululemon projected sales of $2.4 billion to $2.42 billion for the quarter, with an anticipated per-share profit of $2.92 to $2.97. FactSet analysts had expected $2.45 billion in revenue and earnings of $3.03 per share.

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In response to these updates, Lululemon's shares jumped nearly 10% in after-hours trading. Nevertheless, the stock has declined 39% year-to-date amid concerns about slowing demand, with Wall Street setting low expectations ahead of the company’s first-quarter results.

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Analysts continue to express worries about rising competition from brands like Alo Yoga and Vuori, as well as a slowdown in Lululemon's North American market. There is also speculation that changing fashion trends, such as a shift toward wider-leg pants, could impact athleisure’s sustained popularity.

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In the first quarter, Lululemon reported a net income of $321.4 million, or $2.54 per share, compared to $290.4 million, or $2.28 per share, in the same period last year. Revenue increased by 10% to $2.2 billion, with same-store sales up by 6%.

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FactSet analysts had anticipated earnings of $2.40 per share on sales of $2.19 billion and a 6.8% increase in same-store sales.

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Chief Executive Calvin McDonald highlighted the company's global momentum in a statement, saying, "In the first quarter, we saw strong momentum in our international markets, demonstrating how our brand continues to resonate around the world." He added that customers responded positively to product innovations across various categories, and the company is making progress in optimizing its U.S. product lineup.

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When Lululemon last reported its quarterly results in March, the sales outlook provided by executives fell short of Wall Street expectations. They noted the retail environment remained "dynamic" as prolonged inflation has led many shoppers to focus on essential purchases. The company emphasized its commitment to launching "innovative new products and brand activations."

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Last month, former Lululemon Chief Product Officer Sun Choe resigned to become the global brand president of Vans, a sneaker brand owned by VF Corp. BofA analysts acknowledged Choe’s significant role at Lululemon but pointed out that international growth, particularly in China, continues to be a positive aspect for the company.

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Despite the stock's recent underperformance, Lululemon's proactive steps, such as enhancing its buyback program and raising profit forecasts, indicate a strategic effort to reassure investors and boost market confidence. The company's performance in international markets, particularly its strength in China, remains a critical factor in its growth strategy.

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The positive market reaction to Lululemon’s announcements suggests that investors are encouraged by the company's plans and financial outlook. The improved earnings forecast and continued international expansion may help Lululemon navigate the competitive landscape and shifting consumer preferences in the athleisure market. The company's commitment to innovation and product diversification is also likely to play a crucial role in sustaining its brand relevance and market position.

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