Lululemon (LULU) shares are climbing in after-hours trading after beating first quarter earnings estimates and raising its share buyback program to $1 billion. Bernstein Senior Analyst Aneesha Sherman joins Market Domination Overtime to break down the earnings report and what it signals about the state of consumer spending.

"This has been a really big and successful brand in the United States. It's the biggest market shareholder in women's apparel in the US," Sherman says. However, she calls the brand "mature" in the US, explaining that it has stopped growing. "Now the question is, can they offset that with international? And this quarter, they did," she adds.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Melanie Riehl

Video Transcript

Lulu lemon shares jumping in after hours earnings beating estimates while revenue coming in just above expectations.

Company also announcing it's raising its share buyback program to $1 billion.

Joining us now is Bernstein senior analyst, Anisha Sherman and Aisha.

Thank you for joining us here today.

What is your first impression of these Lulu earnings?

So on the top line, it's as expected, you know, the the America's comp the the US comp is negative, the US total sales uh um is about, is about flat America's comp is about flat, that's kind of in line with expectations.

I think they did better than expected on margins which pushed up ebit margin and pushed up some of the EPS numbers both in the current um the current quarter as well as in the guidance, which I think is what you're seeing in the stock reaction.

But the big number that people were looking for was America's growth and that's come in pretty much in line.

So it's a bit of a relief rally that we're seeing in the market after market now.

Hey, Anisha, it's Julie here.

Where did that gross margin beat come from?

Do you think it was a little bit of a gross margin beat but it was actually more of a, an operating expense SGN a beat.

I think they just did some better cost control.

Um, and probably some better economics on their stores that probably drove some of that cost control.

I think we'll hear more about it in the call that's coming up in 30 minutes.

But that's really what drove the beat because the earning, the revenue numbers were in line.

Um We actually slightly below guidance but in line with expectations.

Um but the margins outperformed, I wanna ask you about a report, you recently issued our niche brands killing growth and you had the opportunity to talk to a competing executive.

Um Just what are your, what are your takeaways there?

Is it a case that uh the competition is really eating away at Lulu or is it just a macro thing that's going on?

I don't think it's Macro.

I think it's two things.

One, it's the law of large numbers.

This has been a really big and successful brand in the United States, this the biggest market shareholder in women's apparel in the US.

And so, you know, yes, it's macro, but it's Macro in particular because this is the biggest, this is the incumbent and you can't keep outgrowing the sector when you're the incumbent.

So it's that combined with the fact that there's now this long tail of new competitors that are going aggressively after Lulu.

And so it's both those things together and in past years, it's been a lot smaller and so able to continue to grow.

Despite the macro not being super strong.

Now, it's big enough that when the macro slows down, its size makes it more exposed to that.

So, Anisha, I'm gonna refer to another one of your notes uh and the title of it Over Correction or Broken Growth Story.

Now, I, I don't know that we learned anything remarkably new from today's numbers.

But what would be your answer to that question?

I think in, in the Americas and in the US, we still don't know because the numbers aren't very strong.

I mean comp the the implied comp in the US is negative.

Um the, the, the comp and America's total including a strong result from Canada is flat.

So at best they're about flat, they're probably trending negative in the US.

They probably have a negative exit rate.

And so it does suggest that in the US, this is a mature brand and it's not growing.

In fact, it's shrinking.

Now, the question is, can they offset that with international in this order?

They did, the international numbers have been really strong, but I guess as China Macro continues to be a struggle as well and Europe isn't particularly strong either.

I think it raises a question of like, does this al work if the United States isn't growing?

Can this company still grow So, I don't know if we've answered that question in, um, driven confidence in that answer yet with this quarter.

And I think we'll see what the tone says about where the exit rate is and where they expect the rest of the year to go.

If you had a question, if you could ask anything of the CEO or CFO, what would you seek?

Uh What would you ask about?

I think I would ask about the maturity in the United States.

I would say, you know, this business is not growing in the United States anymore.

It's your biggest market.

It has almost 500 stores and it's not growing.

So, you know, kind of, what do you make of that?

Do you think it's maturity?

Do you think it's just a, a cyclical trend?

Do you think it's an avoidable era in your innovation and your product assortment?

What's driving that?

And then what do you, what do you, what do you make of it for future growth?

And how does that impact your growth outcome?

Well, hopefully you'll get that question on the call and we'll find out what the answer is.

Anisha.

Thanks so much.

It's great to see you.

Thanks.