Morning Note: Market news and an update from Lululemon.

Market News

US equities slipped last night – S&P 500 (-0.2%); Nasdaq (-0.2%) – ahead of today’s jobs data. November nonfarm payrolls are expected to have grown by 220,000 and may provide a steer on whether the Fed cuts rates at its meeting later this month – the market is currently pricing in a 65% chance of a quarter-point reduction. The 10-year Treasury yield slipped to 4.18%, while gold trades at $2,640 an ounce.

In Asia this morning, stocks in China (Shanghai Composite, +1.1%) and Hong Kong (Hang Seng, +1.6%) gained on stronger growth stimulus bets. The Nikkei 225 fell by 0.8%. The US excluded some China chip companies from its export restrictions in a concession to Japan, the SCMP reported.

The FTSE 100 is currently trading 0.2% lower at 8,344. Aviva and Direct Line have reached a preliminary agreement on the terms of a potential acquisition of Direct Line by Aviva. Based on Aviva’s share price (489.3p), the cash and shares proposal represents total consideration of 275p per Direct Line share. This represents a 50% premium to the average share price over the last six months.

The CBI downgraded its 2025 UK growth forecast to 1.6% from 1.9% and warned Keir Starmer’s goal of raising living standards will be held back by budget measures. The Bank of England’s Megan Greene said consumer spending will take time to recover since many mortgage holders are constrained by higher borrowing costs. Sterling trades at $1.2769 and €1.2066.

Emmanuel Macron reiterated he will serve out his term and plans to name a new premier in coming days. A measure of the country’s bond risk fell to the lowest in two weeks amid hopes lawmakers will reach an agreement on the 2025 budget soon.

Venture capitalist David Sacks was selected to be the White House’s AI and Crypto czar. Donald Trump said Sacks will ensure the legal framework for the token has “clarity” to enable the crypto industry to “thrive.” Bitcoin trades at $98,000, having pushed above the $100,00 threshold yesterday.

Source: Bloomberg

Company News

Last night, Lululemon Athletica released results for the third quarter of its financial year to January 2025. Performance exceeded management expectations, and the company nudged up its full-year guidance and confirmed an increase in its share buyback authorisation. The shares rose by 9% in after-hours trading.

Lululemon is principally a designer, distributor, and retailer of healthy lifestyle inspired athletic apparel and accessories. Apparel items include pants, shorts, tops, and jackets designed for a healthy lifestyle including athletic activities such as yoga, running, and training. The company also offers a range of products designed for being on the move, fitness-related accessories, and footwear.

The group operates more than 749 stores across 18 countries. Revenue is split between stores, online, and other revenue, which includes net revenue from outlets, temporary locations, sales to wholesale accounts, and license and supply arrangements. The company is also evolving its studio strategy and will focus on digital app-based services, providing in-home hardware and content for members.

The group is executing on its Power of Three ×2 growth plan, driven by product innovation, customer experience, and market expansion. The aim is to double annual sales between 2021 and 2026 from $6.25bn to $12.5bn, including a target to double men’s, double direct to consumer, and quadruple international net revenue. In FY2023, revenue was $9.6bn.

During the three months to 27 October 2024, revenue grew 8% on a constant dollar basis to $2.40bn, a touch above the market forecast of $2.36bn. Growth was 2% in Americas and 30% internationally, driven by China (+36%). Comparable sales increased by 3% on a constant dollar basis. Store revenue grew by 13%, while digital increased by 4%.

Adjusted gross margin rose by 40 basis points to 58.5%, primarily due to lower inventory provisions, as well as lower product costs, partially offset by higher freight costs in the current year. The adjusted operating margin increased by 70 basis points to 19.8%. Adjusted EPS grew by 13% to $2.87, well above the consensus expectation of $2.69.

The company added 28 new company-operated stores during the quarter, including 14 company-operated stores from the acquisition of the Mexico operations.

The group ended the quarter with $1.2bn in cash and cash equivalents and inventories increased by 8% to $1.8bn. During the quarter, the group repurchased $408m of its shares. Including the recently announced $1.0bn increase in buyback authorisation, the current programme has $1.8bn remaining.

Looking forward, Lululemon pushed up its guidance for the financial year to January 2025 to the top end of the range. Net revenue is now expected to be $10.45bn to $10.49bn, (versus $10.38bn-$10.48bn previously). Adjusted EPS is now expected to be between $14.08 and $14.16, below the previous guidance of $13.95-$14.15.

Source: Bloomberg