What occurred

Shares of athletic attire firm Lululemon Athletica (LULU 12.44%) flew increased on Wednesday after it reported outcomes for its fiscal 2022 fourth quarter. These outcomes have been higher than anticipated and steering was robust, which is why Lululemon inventory was up about 13% as of 1:04 p.m. ET.

So what

Within the quarter, which ended Jan. 29, Lululemon generated income of $2.8 billion — up 30% 12 months over 12 months — whereas administration had guided for income of $2.655 billion at greatest.

CEO Calvin McDonald was significantly upbeat about that development as a result of gross sales have been down for the athletic attire trade as a complete. “That is the very best quarterly market share acquire we have achieved since we started monitoring these numbers in 2020, and it caps a 12 months by which we grew our market share each quarter,” he mentioned.

Adjusted diluted earnings per share (EPS) got here in positive for Lululemon at $4.40. Nonetheless, GAAP (usually accepted accounting rules) EPS took a giant hit due to the corporate’s $500 million buy of connected-fitness firm Mirror in 2020. The Mirror model is struggling, and Lululemon’s administration wrote off $442.7 million referring to the acquisition in fiscal This autumn.

Now what

Lululemon’s acquisition of Mirror was purported to gas development. The retailer’s athletic attire has passionate followers, a lot of whom weren’t conscious of Mirror and its subscription exercise content material. Subsequently, it appeared like a match made in heaven. However Mirror is underperforming, and now administration is pivoting to an app-centric subscription mannequin. {Hardware} gross sales will take a backseat.

Lululemon’s long-term steering requires income of $12.5 billion in 2026 in comparison with income of $8.1 billion in 2022. The excellent news right now is that Mirror’s underperformance hasn’t modified administration’s targets — it nonetheless believes they’re achievable.

For 2023, Lululemon expects to generate income of a minimum of $9.3 billion, or round 15% development. For what it is price, it might want to obtain a compound annual development price of about 12% to hit its 2026 income purpose. Subsequently, regardless of Mirror’s lackluster efficiency, its 2023 steering is effectively forward of the requisite tempo, which ought to be encouraging to shareholders.