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lululemon athletica (LULU +5%) is trading higher following its Q3 (Oct) report last night. LULU posted nice EPS upside and announced a $1 bln share repurchase authorization. Investors seem to not be overly worried that its revenue upside was more modest than usual or that its guidance for the Q4 (Jan) holiday period was below analyst expectations. LULU typically guides higher, so that was a bit of a negative.

• Total comparable sales increased a healthy +13% (+14% CC). This included comparable store sales of +9% and DTC (direct to consumer) comps of +18%. DTC revenue represented 41% of total revenue vs 41% last year. LULU was very pleased with its Black Friday sales, which was the single biggest day in company history. Its stores were very busy, with results driven by strength across both full price and markdown merchandise.
• In Q3, LULU's women's business increased 19%, fueled by new product launches, strength in bottoms and ongoing performance in key franchises. Importantly, LULU launched Wundermost in Q3, its new collection of bodywear made in its softest fabric ever. The Wundermost launch has been met with great initial response.
• The men's business was also strong, with sales up 15% in Q3. However, LULU noted that, when there is some uncertainty in the macro environment, men can become a bit more conservative in their apparel purchases. In Q3, LULU launched two new men's franchises, Steady State and Soft Jersey, which builds out LULU's lounge offering. The response has been very strong and LULU is chasing into additional inventory for these two new hit franchises. Following the holidays, its stores will have a back to gym focus. Also, LULU is gearing up to launch men's footwear in Q1 (Apr). LULU concedes that its men's brand awareness remains low, but building awareness remains top of mind. LULU sees ample opportunity to increase media spend and brand building.
• Turning to international, all regions grew in strong double digits in Q3, including a 53% increase in Greater China. LULU believes several factors benefit it in this important market, including its relatively small size and its relationships with local fitness studios, instructors and influencers.

In terms of the stock reaction, we think investors wanted to see more robust Q4 guidance, especially with the quarter getting off to such a strong start with robust Black Friday sales. We have to admit we are a bit surprised to see the stock higher despite the guidance shortfall and despite shares having already risen +30% since early October (LULU was recently added the S&P 500). It may be that investors think LULU is just being conservative with guidance, and that may well be. Also, the +14% comps were a nice acceleration from Q2's +7% comps. The large buyback was another positive.