Lululemon projects upbeat 2023 on strong demand, easing inventory By Reuters

By Deborah Mary Sophia

(Reuters) -Lululemon Athletica Inc on Tuesday forecast annual sales and profit above Street estimates as the athleisure clothing maker rides on resilient demand and easing inventory glut, sending its shares up nearly 13% in extended trading.

The company also allayed concerns around a deeper margin squeeze on lower air freight expenses and fewer markdowns, after a 300-basis-point hit in the holiday quarter.

Vancouver, Canada-based Lululemon has benefited from wealthier shoppers still snapping up its higher-priced tops, yoga pants and shorts, in contrast to the general trend of inflation-wary customers cutting back on discretionary spending.

A loyal customer base has also allowed the company to sell more of its popular products, such as its Align (NASDAQ:) high-rise yoga pants, which retails between $98 and $118, at full price.

Markdowns increased just 40 basis points in the holiday quarter compared to 2019 pre-pandemic levels, and are expected to remain flat in 2023.

“Lululemon is doing a really good job drawing people into the brand,” Raymond James analyst Rick Patel said, adding new product launches such as its tennis and hiking products are helping gain wallet share among consumers.

Meanwhile, Lululemon is also making good progress in clearing its excess inventories. Inventories were up 50% at $1.4 billion at the end of the fourth quarter, compared to an 85% swell at the end of the prior quarter.

It expects an about 30% to 35% increase in inventory in the current quarter.

Lululemon said it expects fiscal 2023 revenue between $9.30 billion and $9.41 billion, above analysts’ average estimate of $9.14 billion, according to Refinitiv IBES data.

The company forecast full-year profit in the range of $11.50 to $11.72 per share, compared with analysts’ estimate of $11.26.

Lululemon also issued upbeat forecasts for the first quarter, and topped expectations for fourth-quarter results.