Shares of Lululemon (LULU) are rising after beating first quarter earnings estimates and raising its share buyback program to $1 billion. BTIG Consumer Retail and Lifestyle Brands Analyst Janine Stichter joins the Morning Brief to dive deeper into the company's earnings.

Stichter characterizes the company's earnings as a "sigh of relief" amid a management change and decelerating US sales. She emphasized that international sales were "extremely strong" and that the company's Americas business was "less bad than expected." US sales are not worsening, and the retailer "has a handle" on what it needs to fix, the analyst adds.

Coming out of Q4, Lululemon disclosed inventory challenges, which Stichter says the company will seek to correct in Q2 and later in the year with innovation ramping up. International sales were a 'huge piece of the growth story," the analyst says. She notes that China is a "proof of concept" for the company.

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This article was written by Gabriel Roy

Video Transcript

One of the worst performers in the S and P 500 this year is finally having a good go out and shares of Lululemon are up right now by about 9% this morning.

On the back of results that surprised many bears that raided the stock.

Prior to the report, the athletic retailer saw surging demand overseas as it navigates a more cautious consumer here in America and North America, specifically here for the Canadian based company for a deeper dive into the latest results.

We're joined by Janine Stitcher, who's the BT IG consumer retail and lifestyle brands analyst.

Great to have you here with us.

Let's break this down because it was interesting, the strength that they're seeing in the non North American parts of the world while it seems like there was some flattening here and that could perhaps impact some of the outlook as well.

For sure, you have two pieces here.

First, the international piece which as you mentioned was extremely strong, particularly in China, which is a big part of the growth story.

And then you have the Americas and look the Americas did slow.

We knew it would slow.

They had told us that I think the important thing here was it was less bad than expected.

Uh The Americas overall were up about 4% in constant currency.

Consensus was about three, but we'd heard numbers looking for a flat to maybe slightly down.

So the big picture is that yes, we know there's some challenges in the US, but it's not getting worse and it seems like they have a real handle on what they need to fix there.

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Do you think this is a big relief here for investors for shareholders?

Given the challenges that Lululemon has faced here over the last couple of quarters.

For sure.

I think it's a huge sigh of relief.

Um There were a ton of nerves coming into this quarter around the, the America's business, potentially decelerating more than we expected.

I remember we also had a management change.

We had the chief product officer leaving just two weeks ago to go to Bands, which is part of a VF Corp and I think that really spooked people.

So there was a ton of fear coming into this print.

The bottom line is it's things are ok, things are stable, ok?

And so with all of this in mind, I mean, looking across Lou Lemon's business here, the inventory mix was something that they were very positive and optimistic about what's gonna be the driver from an inventory perspective, especially with the pricing strategy that they would have to roll out for anything new?

Yeah.

So I think when we came out of the Q four call, they had talked about some potential inventory challenges, not having the right colors and sizes.

And they were able to get a better grasp on that as they went through the Q one call.

So they talked about leggings in particular where they didn't have the right in stocks of the colors they needed.

Um and accessories, which has been a strong growth driver.

They're seeing growth on top of that now with some of their new or higher price items, but they just didn't have enough.

So I think what we'll be looking for is as we get through the balance of Q two, that's when we'll start to see those products corrected.

Uh They also talked about maybe just not having enough newness and innovation and that sounds like it will really ramp up into the back half of the year.

So right now, it's kind of all eyes in the back half as we think about getting some of these inventory imbalances corrected and seeing a greater flow of newness in the assortment Jeanine.

When you take a look at the international side, I guess my question to you is, is it going to be enough here to support sales growth to support some of that margin improvement that we have seen or should we expect a bit of a slide here given some of the struggles that they're facing in the us.

Yeah, I think the international is going to be a huge piece of the growth story and can help them support double digit growth over the medium term.

If you look at China, they have proof of concept there.

It's a billion dollar business just in mainland China, but they're still growing 40% plus annually.

And we think that can continue for a long time with that said, I think as we think about the stock from here, people are really focused on the US business and we need to see that us business re accelerate the way that they're telling us it's going to in the back half for us to get a multiple on this stocks typical to what similar to what we've gotten in the past.

So we're really looking for a re rating in the back half.

As we see the US business re accelerate.

We're, we're seeing a ton of new entrants into the golf landscape right now and that Sean is laughing at me right now.

This is serious for me.

I'm surprised it took us this long to get there, but kind of me too.

But at the end of the day, this is a major driver that the company is really looking forward to as, as a catalyst.

How much of a catalyst is golf for Lululemon's business?

I think golf is a catalyst, but more broadly, the men's business, I think is a, is a huge catalyst and look we've heard about a lot of viewers around competition, not just in golf, but in men's, in particular, vio is one that stands out as coming up often in conversations, um concerns around the growth, impacting Lulu's men's business, but the men's business was still at 15% in Q one.

So it's hard to say that that's having a meaningful impact.

Um in terms of the competition, we think overall, there's a lot of runway for, for the male business, which is historically just been underserved for both Lulu and for the broader landscape.

So I think that men's is still a big growth driver and wouldn't worry as much about the competition.

I think it just kind of speaks to a market that has a, a lot of white space in it.

You know, it's interesting, especially over the course of this year, we've seen a lot of the performance where brands really lean into some of their big athletic profiles and their, you know, worldwide not names if you will, whether that's new balance leaning into Coco Golf or whether that's Nike and the of course, treasure trove of different athletes that they work with.

Um over the course of this year.

I mean, it's great that the NBA finals are starting today.

They could probably lean into Luka Danic a little bit more, uh or Jason Tatum, all these things considered.

There's never a huge name that Lulu Lemon has had to hang its hat on do they need to start considering anyone?

Yeah, I think their strategy has historically been more grassroots and look, they still have celebrity endorsements.

They still have athletes that they work with who maybe aren't as much household names as some of the other, uh, athletic brands but still are, are relatively well known in their fields and are, are known for what they do.

I think they're going to stick with that.

I think it makes sense.

It's more of a broad approach where they're trying to connect with the core consumers of these products, having just one name that you attach yourself to and look, there can be risk with attaching yourself to just one or two big names too.

Um Those celebrity profiles can come and go, they can have their moments where they are extremely strong and moments where you rather not be associated with them as much.

So I think it's more of a broad strategy, a little bit more of a grassroots approach.

I think that will continue to work for them versus trying to just sign up one or two big names and really taking a concentrated angle.

All right, Lulu Lemon shares up just about 9% here this morning.

Jeanine ST rbdig is a consumer retail and lifestyle brands analyst.

Thanks so much for joining us.

Thank you.