Lululemon Earnings: Strategic Moves and Brand Strength Overcome Economic Concerns; Shares Expensive

Lululemon’s second-quarter results eclipsed our forecast despite soft apparel demand in North America. We believe the company is benefiting from the popularity of athleisure, its brand intangible asset (the source of our narrow moat), and its Power of Three x 2 plan for product innovation, international growth, and omnichannel investments. The firm raised its 2023 respective ranges for sales growth and EPS to 17%-18% from 16%-17% and to $12.02-$12.17 from $11.74-$11.94. While it may be a slight disappointment that it did not lift these ranges more given the results, management commentary about continuing momentum, and product launches, economic conditions are unsettled, and Lululemon has a history of low guidance.