welcome back everyone to the audacious money witch Channel where we talk about investing and trading and a lot of fun things Lululemon just reported earnings full disclosure I really like uh Lululemon and I love Lululemon as well personally I'm I'm a customer I have gone and I've purchased products from Lulu although Lulu missed Wall Street sales expectations for the first time in more than two years as it cut its full year Guidance the stock is actually up this is one of the companies I own Lulu stock has fallen from a 52 we high of 516 37 to $260 is making it a compelling buying opportunity we'll be discussing why I bought five figures of it and what's going on with Lululemon why do I have a strong conviction to make Lulu one of my top Holdings in my personal portfolio we'll be going over Lulu's earnings reports taking a look at how my favorite company is doing why is Wall Street giving us this 50% discount and why must we take advantage of this here's how company did in its fiscal second quarter compared with what Wall Street was anticipating earnings per share beat with $3.15 versus $2.90 expected Revenue missed with 2.37 billion versus $ 2.41 billion expected shares Rose more than 4% in extended trading after initially falling during the quarter Lululemon pulled its Breeze through leggings launched in early July after it received a wave of complaints about the product and flattering fit the bunch launch came after the company struggled with a number of other self-inflicted issues with its assortment including not having the right colors and sizes that its core customers desired the flops have contributed to a Slowdown in the company's largest market the Americas during the quarter sales grew only 1% in the region sales jump 29% in Lululemon's International markets as the company looks to China for growth in the US our teams continue to optimize our product assortment and remain focused on driving forward our opportunities in the market CEO Kelvin McDonald said looking ahead we feel confident in the long runway in front of us comparable sales increase to 2% comparable sales refers to the sales generated by stores that have been operating for a minimum of one year it is a critical indicator of a Retailer's health and operational efficiency they provide insights into consumer demand Rising comparable sales often suggest that consumer demand is increasing while declining sales May indicate a loss of customer interest or increased competition America's comparable sales decreased 3% International comparable sales increased 19% diluted earnings per share were $3.15 compared to $268 in the second quarter of 2023 Lulu Lemon repurchased 1.9 million of its shares for a cost of 580 3.7 million at around $310 per share Megan Frank CFO said earnings per share exceeded our expectations in the second quarter driven by better than expected gross margin expansion and disciplined execution as we enter the back half of the year we remain focused on executing on our near-term priorities while strategically investing for long-term growth the company ended the second quarter of 2024 with 1.6 billion doar in cash and cash equivalents inventories at the end of the second quarter of 2024 decreased by 14% to $1.4 billion compared to $1.7 billion at the end of the second quarter of 2023 2024 outlook for the third quarter of 2024 the company expects net revenue to be in the range of $2.34 billion to .365 billion representing growth of 6% to 7% diluted earnings per share are expected to be in the range of $268 to $273 for the quarter for 2024 the company now expects net revenue to be in the range of .375 billion to 10.47 five billion representing growth of 8% to 9% diluted earnings per share are now expected to be in the range of $13.95 to $14.15 for the year on the call with analyst CEO Kelvin McDonald addressed the breath through launch and said it was an opportunity for the company to test and learn he added the company bought a small amount of the product for the launch while guests were excited by the fabric the design didn't meet their expectations listening to our guests is Central to who we are and how we grow our brand and we took the right step of pausing on sales and look forward to reintroducing the fabric in the future said McDonald this decision had a negligible impact on her performance in this quarter McDonald acknowledged Lululemon's women's business has slowed down in the US he said the company has determined the most significant factor affecting the segment is a lack of new Styles which has hurt sales of bottoms and the company online business the newness that we had performed well we simply did not have enough to inspire her to purchase he said McDonald insisted the Lululemon brand remains strong in the US market and said its men's business continues to grow guests are looking for our product coming into our stores and visiting our eCommerce sites said McDonald McDonald said the company had a succession plan in place at the time of chose departure and said the company's Global creative director John Jan Chung would report directly to McDonald and oversee product design and Innovation the company also appointed Nikki newberger as its new Chief brand and product activation officer overseeing merchandising Footwear and product operations on Thursday McDonald said he and newberger are pleased with the new structure which puts Design and Merchandising on equal footing and reestablishes the healthy balance that must exist within a product organization the teams are working well together and already in action said McDonald like other retailers that are seeing demand slow Lululemon appears focused on within its control operations and efficiency while the sales picture during the quarter was rougher than expected Lululemon's profits came in higher than anticipated gross profit increased 9% to $1.4 billion gross margin increased 80 basis points to 59.6% better than the 57.7% that analysts had expected its operating margin and operating income also increased I think that investors have lost their diversity and Independence as they Pegg their estimates of Lulu intrinsic value to fearmongering Wall Street analysts and sensationalist news outlets the market has overreacted in the short term to recent negative press namely the release of the underwhelming breeze through collection and the loss of their iconic Chief product officer additionally it appears that the slowing growth in the Americas has been overplayed as a weakness by the market in light of Rapid expansion in China Mainland and internationally in my opinion Lulu's brand Mo featuring community-based marketing and premium product quality remains robust as ever I believe they are posed for a rebound as investor sentiments align with their strong International performance Lulu commands only around 2.5% of the global Global sportsware industry we have a long way to grow however I believe Lululemon has carved out a distinct mod distinguishing itself from major players with premium branding focused on luxury Fabrics the main concern markets have is the entrance of smaller players aiming to capture market shares in a luxury sportsare sector Brands such as vori and Alo yoga have disrupted the scene with both Brands having a high percentage of Shoppers that overlap with Lululemon Lulu has a deeper M than markets think the market has seemingly priced in concerns over Alo yoga and vuori stealing market shares from Lulu I believe that these concerns are overplayed considering Lulu's competitive advantages over these newer ENT Trend firstly Lulu's brand Equity will be hard to erode on the basis of the unique Community Based marketing strategy the company employs Lulu runs an international brand ambassador program partnering with homegrown influencers who have genuine connections with local Fitness communities this extends to Partnerships with local Yoga and Fitness student Studios where select Studios offer discounts on Lulu gear Additionally the brand social media content strategy also gives autonomy to ambassadors to create content tailored to local communities furthermore Lulu also hosts regular Fitness and Wellness themed events yoga sessions workshops run clubs hit training to name a few these community Community Building initiatives CES under a Nifty Mantra The Sweat Life competitors have thus far failed to successfully emulate the community aspect of the Lulu brand Alo yoga and vor's community outreach efforts are at much smaller scale and largely restricted to the North American region moreover Alo yoga and vori tend to lean towards using influencers and models as ambassadors compared to Lulu's more humble community-based ambassadors additionally Lulu possesses Superior product quality and ability to do R&D over time I anticipate that this Advantage will lead to a deepening of the moat as Lulu Superior Products and quality assurance prevails for your information I have been buying a ton of Lulu shares at around $250 I hope that it drops more so I can buy more for cheap cheers I have been loving Lululemon ever since I became a customer so the first piece that I bought of Lululemon ever since that day I've been hooked and I'm not just saying this because I'm a Lululemon shareholder I absolutely love the quality of the product they Stitch it so perfectly when I watch wash it I'm not afraid of it falling apart if you know what I mean now with a lot of Brands you wash it once and you're already seeing the seams starting to pop who wants that who wants to pay a lot of money for something and then when you wash it it falls apart just my honest opinion my honest humble opinion and sure it is an expensive product you are paying $100 for maybe one item or maybe even $75 for one scor but you can wash it you can wear it you can wash it again and you can wear it and it holds up for years and years and years and this is why I believe in Lululemon as such a strong brand such a strong moat it's because I wear the product and I absolutely love the product and when you can say that you actually wear the product you love the product and you are just not just a shareholder not just a customer but a customer that absolutely adors the product that they're wearing then you can actually get on camera and you can actually tell people and really genuinely say it and not just be bullshitting not be bullshitting but actually saying the truth [Music]