Lululemon's Two-Tone tote shows how retailer is looking to get back on track

By Mira Donaldson

Lululemon's stock has fallen this year, but the company says new bags are resonating with customers

Lululemon has seen success with its Two-Tone Canvas Tote Bag, which sold out almost instantly, but the company said it had a "missed opportunity" by not amassing enough supply last quarter.

"We just didn't have the depth of inventory to satisfy the demand," Calvin McDonald, the company's chief executive, said on Wednesday's earnings conference call.

With the Two-Tone bag doing well, the company (LULU) is "chasing inventory" for it and other popular new styles that could be harbingers of the company's success going forward.

Last year, Lululemon had a hit with the Everywhere Belt Bag, which was popular on TikTok. "Although that bag continues to perform well, not quite to the levels of last year, the team has introduced a number of new styles of bags that the guests responded incredibly well to," McDonald said.

Overall, Lululemon's domestic business is growing far more slowly than its international business: Americas revenue rose 3%, while international revenue increased 35%. Lululemon said that the company has found success in mainland China specifically, a market that is expected to continue to contribute to growth.

Even though international markets are growing the fastest, Lululemon has initiatives across all markets that it expects will help it remain successful.

Among those initiatives are plans to open 35 to 40 net new company-operated stores in 2024.

"In terms of new store openings, we continue to see opportunity and runway across all of our geographies," Chief Financial Officer Meghan Frank said on the earnings call.

Lululemon shares were down 39% in 2024 before the report but are up 5.9% in Thursday's session. Investors see room for success as the company opens new stores and extends its stock-buyback program by $1 billion.

"While there are undoubtedly some challenges domestically (including competition from brands like Alo and Vuori and the departure of former Chief Product Officer Sun Choe), we believe there remains a long runway internationally and on the men's side," Tom Nikic, a Wedbush analyst, said in a report. "Plus, they can potentially reinvigorate the core U.S. women's business via product innovation."

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06-06-24 1605ET

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