Shares of Lululemon took a nosedive on Friday following the release of disappointing guidance by the athletic apparel retailer, which also cited sluggish sales in its largest market, the U.S.
The company revealed its holiday earnings on Thursday evening, which exceeded expectations, but highlighted a concerning trend of stagnating growth in North America.
According to a survey of analysts by LSEG, formerly known as Refinitiv, here’s how Lululemon fared in its fourth fiscal quarter compared to Wall Street’s projections:
- Earnings per share: $5.29 vs. $5.00 expected
- Revenue: $3.21 billion vs. $3.19 billion expected
During the three months ending Jan. 28, the company reported a net income of $669.5 million, or $5.29 per share, up from $119.8 million, or 94 cents per share, a year earlier.
Sales surged to $3.21 billion, marking a robust 16% increase from the previous year’s $2.77 billion.
However, despite this notable uptick in sales, shares of Lululemon closed approximately 16% lower on Friday. Year-to-date, the stock has experienced a steep decline of about 21%, significantly trailing behind the S&P 500 index, which has seen a roughly 10% increase over the same period.
Much like its industry counterparts, Lululemon has been grappling with uncertain consumer demand and a slowdown in discretionary spending, which has particularly impacted the apparel sector.
Investors have closely monitored Lululemon’s performance in North America, its primary sales region, especially as it faces tougher year-over-year comparisons and contends with consumers prioritizing experiences over tangible goods like clothing and footwear.
In the quarter under review, sales in the Americas rose by 9%, a notable deceleration from the 29% growth seen in the corresponding period last year. Although Lululemon continues to register growth in the region, the pace has significantly slowed down as the company shifts its focus toward international expansion.
“As you’ve heard from others in our industry, there has been a shift in the U.S. consumer behavior of late and we’re traversing what has been a slower start to the year in this market,” explained CEO Calvin McDonald during a call with analysts on Thursday.
“We view this as an opportunity to keep playing offense as we lean into investments that will continue our growth. Outside the U.S., our business remains strong.”
McDonald noted a decline in both traffic and conversions in the U.S., attributing it to a shortage of products in sizes zero to four, which are crucial for the U.S. customer base, as well as insufficient colorful items.
On the other hand, international sales saw a remarkable 54% increase on a reported basis, driven by a staggering 78% growth in China and a solid 36% growth in other markets where Lululemon operates.
Comparable sales witnessed a 12% rise during the quarter, just slightly below the 12.3% increase that analysts had anticipated, according to StreetAccount.
For the current quarter, Lululemon anticipates net revenue to fall within the range of $2.18 billion to $2.20 billion, reflecting a growth rate of 9% to 10%. This forecast falls short of analysts’ expectations, who were projecting revenue of $2.25 billion, representing a growth rate of 12.5%, according to LSEG.
The company also expects diluted earnings per share to be in the range of $2.35 to $2.40, which is lower than the $2.55 that analysts had anticipated, as reported by LSEG.
Looking ahead to the full year, Lululemon forecasts sales to be between $10.7 billion and $10.8 billion, compared to estimates of $10.9 billion by analysts surveyed by LSEG.
Moreover, it anticipates diluted earnings per share for the year to range between $14 and $14.20, slightly below the estimated $14.13, according to LSEG.
Lululemon has long been a prominent player in the women’s athletic apparel market, hailing from Vancouver, but it’s now facing fiercer competition than ever before.
Emerging brands like Alo Yoga and Vuori have been chipping away at Lululemon’s market share, prompting the company to intensify its efforts to differentiate itself in this increasingly crowded space.
The retailer has been strategically expanding its footwear offerings and bolstering its presence in the men’s segment to counter this competitive area. During the quarter, it marked a significant milestone by inaugurating its inaugural men’s store in Beijing, a pivotal growth market for the brand.
In February, it introduced its inaugural men’s sneaker, CityVerse, and has plans underway to introduce new running styles for both men and women, capitalizing on the robust demand for performance sneakers amidst an otherwise lackluster footwear market.
Heading into the holiday season, CEO McDonald remarked that Black Friday stood as the “single biggest day” in the company’s history, expressing optimism about the initial seasonal trends. However, the retailer’s outlook for the holiday quarter fell slightly short of analysts’ projections.
In January, the company revised its guidance upward following a period of sales performance that was “well-balanced across channels, categories, and geographies,” as highlighted by finance chief Meghan Frank in a news release.
