Despite a slowing U.S. economy, the athletic wear retailer has experienced significant growth internationally, resulting in a 9% increase in sales compared to the previous year. On Thursday, the yoga wear company not only surpassed Wall Street's financial expectations but also expressed satisfaction with the initial performance of the holiday season.

However, during a discussion with financial analysts, CEO Calvin McDonald adopted a reserved stance regarding the company's projections for the fourth quarter. He stated, "While we are optimistic about the holiday season's start, we still face substantial sales weeks ahead. Considering the abbreviated holiday shopping season, we remain cautious in our planning for the fourth quarter."

Based on a survey conducted by LSEG among analysts, here's a comparison of Lululemon's actual fiscal third-quarter performance against Wall Street's expectations:

• Earnings per share: Actual $2.87 compared to the expected $2.69
• Revenue: Actual $2.40 billion compared to the expected $2.36 billion

Following the announcement, the company's shares increased by approximately 8% during extended trading on Thursday. Lululemon reported a net income of $352 million, or $2.87 per share, for the three-month period ending October 27, up from $249 million, or $1.96 per share, in the same period the previous year. Sales climbed to $2.40 billion, a nearly 9% rise from $2.20 billion a year earlier.

For the crucial holiday shopping quarter, Lululemon anticipates revenue to range between $3.48 billion and $3.51 billion, indicating an 8% to 10% growth from the previous year. This forecast slightly misses the analysts' consensus of $3.50 billion, or a 9.1% increase, which aligns with the midpoint of Lululemon's guidance. The company expects earnings per share to be between $5.56 and $5.64, with the higher end exceeding the $5.59 that analysts anticipated, according to LSEG.

During the analyst call, CFO Meghan Frank mentioned that the company is managing its business prudently in light of the shortened holiday shopping season and the "uncertain macro environment." For the full fiscal year, Lululemon has slightly adjusted its revenue guidance, now projecting it to be between $10.45 billion and $10.49 billion, up from the previous range of $10.38 billion to $10.48 billion. This outlook is slightly above the $10.44 billion that Wall Street had anticipated, as per LSEG. The company also expects earnings per share to be between $14.08 and $14.16, which is ahead of the $13.97 that analysts had forecasted.

Over the past year, Lululemon has encountered some challenges. Although it continues to grow, the pace has slowed, and the competitive landscape has intensified. Traditional rivals such as Nike, Gap's Athleta, and Levi's Beyond Yoga have always been competitors, but new entrants like Vuori and Alo Yoga are also capturing market share from the Canadian retailer. Lululemon has turned to China for growth, which has successfully boosted overall sales. Company-wide comparable sales increased by 4% during the quarter, surpassing the 3.2% growth that Wall Street had anticipated, according to StreetAccount.

Behind this figure is a 2% deceleration in comparable sales in the U.S., contrasted with a 25% increase internationally. Total revenue grew by 2% in the Americas during the quarter and by 33% internationally. Nevertheless, the Americas remain Lululemon's largest market, while international sales still account for a small fraction of its overall revenue.

Lululemon has also faced internal challenges, including a mishandled high-profile product launch earlier this year, which resulted in missed sales opportunities in the U.S. due to a lack of desired colors and sizes for its core customers. When the company reported earnings in August, McDonald insisted that the brand's strength in the U.S. remained intact, but the women's business had slowed due to an insufficient number of new styles to attract customers. These issues coincided with the departure of Lululemon's long-time Chief Product Officer Sun Choe, who resigned in May to join V.F. Corp. Following her departure, McDonald introduced a new organizational structure that consolidates Lululemon's brand and merchandising teams under the leadership of Chief Brand and Product Activation Officer Nikki Neuburger. McDonald stated that this new structure enhances the company's efficiency and is "on track" to increase new product launches in time for the spring selling season.

"Our teams have demonstrated agility and have been responsive to seasonal colors, prints, and patterns. You've likely noticed several examples across our key franchises," said McDonald. "These efforts have contributed to the sequential improvement in the novelty of our product assortment in the latter half of the year... we continue to see significant potential for growth in the U.S."

In a note, GlobalData Managing Director Neil Saunders suggested that it appears Lululemon's product challenges are now behind it. "Throughout the third quarter, the women's range felt fresh and engaging, offering plenty to capture shoppers' attention," the retail analyst commented. "This not only improved the conversion rate but also helped with average basket sizes. In our view, Lululemon deserves credit for the swift course correction, which highlights that it is a merchant-led organization."

Lululemon's struggles also occurred amidst a period where consumers, grappling with persistent inflation and an economy that feels worse than it might actually be, have become more discerning and less forgiving of brand mistakes. Amidst its challenges, Lululemon has turned to stock buybacks to appease Wall Street. The company approved a $1 billion increase to its stock repurchase program this month. As of Thursday, it had approximately $1.8 billion remaining in the program.

Lululemon has also focused on enhancing profitability amid uncertain demand. During the third quarter, the gross margin increased more than expected, rising by 1.5 percentage points to 58.5%, surpassing the 57.5% that analysts had anticipated, according to StreetAccount.