Lululemon Beats Expectations, Keeps Away From China Taxes

CLOTHING
Men's apparel. (Photo: Photo by Ranjat M/Pixabay)

Lululemon (LULU) stayed true to form when it brought to the table the kind of numbers its investors have been craving for: $884 billion revenue on earnings of 96 cents per share, beating estimates of every metric for the first six months.

For its North American sales, the athletic-leisure brand also exceeded projections by Wall Street analysts of 22 percent and hit a 15 percent surge in same-store sales. Its men's apparel lineup is also growing like never before with a 36 percent increase, beating sales of its own women's clothing brand.

International apparel retail firms have been working doubly hard to minimize their exposure to the Chinese market as a new round of taxes sweep across the business. US President Donald Trump and his economic team imposed a 15 percent tariff on a huge portion of Chinese clothing brand starting September 1.

Lululemon Athletica has had prior knowledge regarding the new tax implementation and focused its production to other regions, trade research agency Panjiva disclosed.

In the midst of marketwide worries in the clothing venture over Washington's latest tax moves, Lululemon is wisely steering away from the hazards of a trade conflict.

Based on initial figures released by Panjiva, Lululemon sourced almost 13 percent of its imported goods from mainland China in the four quarters capping the month of August, a drop from 22 percent three years ago. With regards US taxes on Chinese imports, Guido said it is an issue that the company feels is "highly manageable" for them.

Around 7 percent of Lululemon's finished products are vulnerable to the new US taxes on Chinese imports. According to the company's chief financial officer P.J. Guido, this percentage is low considering how Lululemon has "diversified our vendor base." Going forward, the athletic retailer brand does not anticipate it to be a huge impact on the overall business.

Meanwhile, Lululemon is gearing to actually expand its presence in China in the coming months. The retailer is looking to launch 15 outlets in the country by the end of the year, which would almost double the number of its branches in China since the end of 2018, chief executive officer Calvin McDonald said.

Lululemon's Asia-Pacific sales were up more than 30 percent in the second quarter, boosted by 67 percent rally in China. The company's stocks soared 61 percent so far for 2019.

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