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Lululemon stock rallies after strong earnings report, guidance boost

Yahoo Finance Live anchors discuss second-quarter earnings for Lululemon.

Video Transcript

BRAD SMITH: Let's switch gears though, because somehow, it's still earnings season. It's the song that never ends. And it just goes on and on, especially with shares of Lululemon jumping in pre-market action after the company posted a big beat on earnings and was one of very few retailers to boost guidance for the year.

Now, same store sales, they also jumped by 23%. Brian, you and I have been waiting for this report on the edge of our yoga mats, we'll say, because this one-- I mean, ultimately, yes, Calvin McDonald, the chief executive officer over at Lululemon and said that the momentum in our business continued in the second quarter, fueled by strong guest response to product innovations, community activations, and omni-experience there.

I will point out just very briefly here as well that on the direct-to-consumer net revenue front, that continues to represent 42% of their total net revenue compared to 41% this time last year as well.

BRIAN SOZZI: This company, Lululemon, gave the bears nothing of what they wanted inside this report. Let's go through this. Sales up 29% in a market in retail that has been basically falling apart the past two months. Warnings, Target. Warnings, Walmart. Warnings, Kohl's, Macy's, warning.

Here you have Lululemon, sales up 29%. And oh, yeah, they also raised their guidance for the full year pretty materially by more than about $0.25 or even $0.30 at the midpoint. That is huge.

Conference call, bullish. They did not cut their five-year revenue growth targets, as some in the Street were looking for. So all that was a positive factor.

Where the company is getting dinged though, inventory. Inventory up 85% year over year. That is one of the strongest gains in inventory from specialty apparel outside of, I believe, the 70% increase Abercrombie and Fitch saw, something worth monitoring going forward.

But look, Brad, here's a company full steam ahead, not giving promotions, saying it's not going to start cutting prices. It's not going to start offering discounts. They're just going to keep on doing what they're doing.

BRAD SMITH: Yeah, to that point, don't expect a ton of promotions here. They said on the conference call that ultimately, they are not creating traffic through markdowns or price promotions. They remain predominantly a full-priced business. They have not changed their promotional cadence or markdown strategy. And they have no plans to do so.

So you can walk to the back of the store, to the "we made too much section" all you want. But chances are, you're not going to see that increase dramatically versus what you've expected in the past, number one.

Number two, can we spend a little bit of the time here that we have talking about unicorns tears?

BRIAN SOZZI: I want to see the unicorn tears.

BRAD SMITH: It's making a comeback.

BRIAN SOZZI: We got the photo. We should have the photo of the unicorn tears.

BRAD SMITH: I'll tell them what it is though, first.

BRIAN SOZZI: It's an outfit that was very popular.

BRAD SMITH: Throwback strategy.

BRIAN SOZZI: Throwback, 2012, Lululemon going back to its archives and bringing out unicorn tears clothing. So it's interesting. It is an interesting look, maybe not my look. But again, there you have the unicorn tears.

BRAD SMITH: That's your look.

BRIAN SOZZI: That is what-- if unicorns lived-- and I think they do-- that's what their tears would look like plastered all over that, I don't know, what, $250 shirt.

BRAD SMITH: This is not quite like the original unicorn tears, we should note. Some of the original, the OG unicorn tears, it had more of like a cascading type of effect to it. I don't know. Maybe I'm a little bit too versed in the unicorn tears. I did a little research on that.

BRIAN SOZZI: How come we know they're unicorn? Are they horse tears? Are they cow tears? What makes them unicorns, is the colors?

BRAD SMITH: I thought-- yeah, it is the colors, but it's also just the pattern. I mean, the old unicorn tears, it was a little bit more multicolored. This one is a little bit less ROYGBIV. And so I think ultimately--

BRIAN SOZZI: (OVERTAKEN BY LAUGHTER) ROYGBIV! I haven't heard that for like 25 years!

BRAD SMITH: That's taking us back to high school here. So also, just we've got to talk for a blip about the footwear. They're also going to continue to launch their fourth footwear style, Strong Feel. We had some very strong words from one analyst that we had on earlier this week that said, this is just not going to work for them. And so it's going to be interesting to watch how much money they continue to pour into Strong Feel or just the broader footwear category here.

And then the last thing that I did want to note is just how they're actually delivering inventory there too because that is particularly interesting when they're talking about how long it's taking to receive goods and how long it's taking to get to peak.

Previously, just keep this in mind. On average, it was about 45 days that it took them to get inventory. That went up to 90 days and over during the peak disruption. Now they've seen that drop to about 70 days. And so still not at 45 days, but that's why it's also taking longer for some of those SKUs to become available for people to be able to purchase.

BRIAN SOZZI: Brad, you know what makes me giggle is Lululemon is probably paying someone $500,000 plus a year, excluding bonus, to think of names like Strong Feel. Come on! I mean, what are they gonna call it, soft feel? Soft feel sneakers?

BRAD SMITH: Look, we could do a Yahoo Finance poll and come up with some--


BRAD SMITH: --some workshopping.

BRIAN SOZZI: Ridiculous.

BRAD SMITH: Yeah, all right.