Lululemon is getting hit by nasty inflation like everyone else in retail, forcing the athleisure company to jack up already lofty prices that much more.
"As we look into 2023, in terms of pricing, we're taking modest price increases on about 10% of our assortment," Lululemon CFO Meghan Frank told analysts on a late Thursday earnings call. "As we've said before, we strategically look at prices in terms of quality and make of our goods in the competitive landscape. We will continue to use that as a strategy as we move forward."
The price hike comes as Lululemon sees surging costs for raw materials such as petroleum. In a new note, Citi analyst Paul Lejuez estimated that 75% of Lululemon's product assortment is petroleum-based.
Lululemon says it hasn't seen any resistance to price increases taken so far, likely emboldening it to keep pushing on this front to protect margins. In fact, that momentum with consumers showed up in the company's latest earnings report.
Earlier on Thursday, the apparel retailer reported that first quarter sales in North America and internationally rose 32% and 29%, respectively, while adjusted operating profits rose 29%. But those aforementioned inflationary pressures did clip profit margins — gross margins tanked 320 basis points from a year ago.
Lululemon lifted its full year earnings guidance to $9.35 to $9.50 a share from $9.15 to $9.35 previously.
Shares rose slightly in pre-market trading.
"While there does not appear to be any slowdown in spending for Lululemon's customer base so far (a higher income demographic), inventories are a little high in our view, particularly if spending trends weaken as the year progresses (and if the spending trends increasingly favor “going out” apparel)," Lejuez said. "Still the strong top-line results and success of recent category launches including footwear, golf and tennis, underscore the strength of the brand."
We will see how strong the brand is when a pair of $128 flexible male khakis costs $140, pre-tax.
Correction: A previous version of this post‘s headline incorrectly stated that Lululemon was raising prices “by 10%.” We regret the error.