Sales are up 10% this year, almost half last year's growth. However, on a positive note, this is the twentieth consecutive year of double-digit growth for the Vancouver-based group.
On a like-for-like basis, growth stumbled in North America - down 1% - but remained very satisfactory internationally, up 22%. As MarketScreener wrote in these same columns in June 2024 - see Don't bury Lululemon just yet - it is outside the North American market that the growth opportunity now lies for the queen of athleisure.
As it stands, North America accounts for only 25% of sales, compared with 21% last year. China remains - by far - the main foreign market in its sights. Lululemon operates 151 stores there, five times more than in Australia, its second-largest international market in terms of volume, and seven times more than in South Korea or the UK, which share third place equally.
International sales growth remains impressive - at 41% in China and 27% in the rest of the world - but is also slowing down markedly, since in the previous fiscal year it was 67% in China and 43% in the rest of the world.
Management warns that this general deceleration trend will continue into 2025, as it forecasts consolidated sales growth of between 5% and 7% for the current fiscal year. This would be the first time in its history that Lululemon has abandoned a double-digit rate of expansion.
Apart from this event, dependence on the Chinese market is of course a legitimate source of concern: Lululemon still enjoys undeniable seductive power there, but its yoga pants could certainly be tactfully copied by a local brand, and sold at a fraction of the prices charged by the North American brand.
In any case, the consolidated group's profitability remains excellent, with a gross margin reaching an all-time high of 59.2% - proof that $150 yoga pants still find takers, even in a recessionary economy - and an operating margin of 23.7% well above that of a benchmark like Inditex, owner of Zara.
Free cash flow is more or less on a par with last year. The difference is that, this year, the group is emphasizing share buy-backs, directing all its free cash flow to this purpose, whereas last year it was hoarding, most likely in anticipation of a major acquisition that did not take place.
Lululemon's valuation is below 20x its operating profit. It would therefore be an exaggeration to speak of extreme investor mistrust; rather, we are witnessing a normalization after the speculative euphoria of the Covid years.
