Market news and a positive update from Lululemon.
Market News
US equity markets were little changed ahead of today’s employment report – S&P 500 (-0.2%); Nasdaq (+0.1%). The data may add a chapter to the soft-landing narrative. August non-farm payrolls are forecast to show employers boosted their payrolls by nearly 170,000 in August, while the unemployment rate held at a historic low of 3.5%.
China reduced the amount of foreign currency deposits banks will be required to hold as reserves, in a move to prop up the yuan. Financial institutions will need to carry just 4% in reserve starting 15 September, the PBOC said, compared to the current level of 6%. The offshore yuan pared initial gains. This morning in Asia, equity markets ticked higher: Nikkei 225 (+0.3%); Hang Seng (closed); Shanghai Composite (+0.4%)
UK home prices fell 5.3% in the year in August, Nationwide said, the fastest pace since July 2009. Prices declined 0.8% on the month — double the drop economists were expecting — following a revised 0.3% decline in July. Sterling buys $1.2664 and €1.1675, while the FTSE 100 is currently trading 0.2% higher at 7,455.
The yield on the German 10-year Bund eased to 2.49% after data revealed the Eurozone’s inflation rate unexpectedly maintained stability in August. However, figures pointing to a slowdown in underlying price growth added complexity to the situation for the European Central Bank.
Brent Crude trades at $87 a barrel and is headed for the biggest weekly gain since early April after Russia agreed with its OPEC+ partners on further export curbs and US inventories dropped. Uranium moved back above $60/pound. Gold slipped to $1,941 an ounce.
Source: Bloomberg
Company News
Last night, Lululemon Athletica released results for the second quarter of its financial year to January 2024, with revenue and profit both exceeding expectations. This was in stark contrast to recent negative updates from others in the sector. The group nudged up its full-year guidance and, in response, the shares moved up by 1% in after-hours trading.
Lululemon is principally a designer, distributor, and retailer of healthy lifestyle inspired athletic apparel and accessories. Apparel items include pants, shorts, tops, and jackets designed for a healthy lifestyle including athletic activities such as yoga, running, and training. The company also offers a range of products designed for being on the move, fitness-related accessories, and footwear.
The group operates more than 670 stores across 18 countries. Revenue is split between stores (44%), online (46%), and other revenue (9%), which includes net revenue from outlets, temporary locations, sales to wholesale accounts, and license and supply arrangements. The company is also evolving its studio strategy and will focus on digital app-based services, providing in-home hardware and content for members.
The group is executing on its Power of Three ×2 growth plan, driven by product innovation, customer experience, and market expansion. The aim is to double annual sales between 2021 and 2026 from $6.25bn to $12.5bn, including a target to double men’s, double direct to consumer, and quadruple international net revenue. In FY2022, revenue was $8.1bn.
During the three months to 31 July 2023, revenue grew 20% on a constant dollar basis to $2.21bn, a touch ahead of the market forecast of $2.17bn. Growth was 11% in North America and 52% internationally. Comparable sales increased by 13% on a constant dollar basis. Comparable store sales increased by 9%, with 10 stores added during the quarter, while direct to consumer net revenue increased 17%.
Adjusted gross margin rose by 230 basis points to 58.8% as lower air freight costs were partially offset by an increase in costs related to product departments and distribution centres. The adjusted operating margin increased by 80 basis points to 21.7%. Adjusted EPS grew by 19% to $2.68, well above the consensus expectation of $2.54.
The group ended the quarter with $1.1bn in cash and cash equivalents and inventories increased by 14% to $1.7bn. During the quarter, the group repurchased $192m of its shares.
Looking forward, Lululemon expects its recent momentum to continue and has upgraded its outlook for the financial year to January 2024. Guidance for net revenue is now forecast to be between $9.51bn-$9.57bn, versus $9.44bn-$9.51bn previously. Adjusted EPS is expected to be in the range of $12.02-$12.17, up from previous guidance of $11.74-$11.94.
Source: Bloomberg