China's sales surge by 60%! "Middle-class Harvester" Lululemon reports strong growth in the second quarter.

In a challenging macro environment, Lululemon, known as the "middle-class harvester," has achieved growth against the trend, with both revenue and net profit rising in the second quarter, and revenue in the Chinese market soaring by 61%.

On Thursday, Lululemon released its second-quarter earnings report, with revenue reaching $2.2 billion and net profit at $341.6 million, both showing an 18% year-on-year growth, surpassing analysts' expectations.

Diluted earnings per share were $2.68, higher than the expected $2.54 and an increase from $2.26 in the same period last year. The second-quarter gross margin increased by 230 basis points to 58.8%, surpassing analysts' expectations of 58.5%.

Overnight, Lululemon's stock price rose 1.2% to $381.26, with a year-to-date increase of nearly 18%.

Lululemon's performance is impressive both in terms of product categories and regional markets.

In terms of regions, international business is the main driver of sales growth. Sales outside of North America increased by 52%, with China's revenue surging by 61%, accounting for 12% of total revenue. This growth rate is much higher than the 30% in the same period last year.

Calvin McDonald, CEO of Lululemon, stated that both e-commerce and physical stores in the Chinese market have performed exceptionally well. Currently, Lululemon has 107 stores in China and plans to open 35 stores globally this fiscal year, with the majority in the Chinese market.

Meanwhile, the North American market has shown signs of improvement. Lululemon's sales in North America increased by 11%, driven by affluent customers purchasing more fitness equipment and crossbody bags. Additionally, Lululemon's market share in the United States increased by 1.3 percentage points, with growth in both men's and women's clothing.

In terms of product categories, after "harvesting" the female market, Lululemon has shifted its focus to middle-class men. Sales of men's clothing increased by 15% this quarter, and the retailer opened 10 new stores, including its first store in Thailand.

Regarding the performance of this quarter, Calvin McDonald pointed out during the earnings conference that these results demonstrate the company's business strength, and the strong performance is expected to continue into the third quarter.

Currently, due to weak consumer spending, some apparel manufacturers, including Nike, have adopted a conservative approach. However, Lululemon expects to maintain strong sales momentum throughout the fiscal year and has raised its performance guidance.

Lululemon expects revenue for the year to reach between $9.51 billion and $9.57 billion, with annual profit estimated to be between $1.202 billion and $1.217 billion. Previously, Lululemon announced an ambitious growth plan called the "Power of Three x2" strategy, aiming to double its sales from $6.25 billion in 2021 to $12.5 billion by 2026. In order to achieve this goal, the retailer has been actively expanding its physical store footprint and doubling its revenue from menswear and direct-to-consumer channels.