LululemonThe company’s growth in the Americas, its largest market, appears to be stalling after the retailer on Wednesday reported flat comparable sales in the region and a tender outlook for the current quarter.
The sportswear retailer easily topped Wall Street earnings estimates but only slightly beat revenue expectations. Lululemon’s full fiscal year guidance suggests the company assumes betting conditions will improve in the second half of the year.
Here’s how Lululemon performed in its fiscal first quarter compared to Wall Street expectations, based on a survey of analysts conducted by LSEG:
- Earnings per share: USD 2.54 against expected USD 2.38
- Income: $2.21 billion against the expected $2.19 billion
Despite a soft rally, Lululemon shares rose 10% on Wednesday in extended trading. The company also announced it would add $1 billion to its share repurchase program.
The company’s reported net income for the three months ended April 28 was $321 million, or $2.54 per share, compared with $290 million, or $2.28 per share, a year earlier.
Sales rose to $2.21 billion, up about 10% from $2 billion a year earlier.
In a press release, CEO Calvin McDonald touted the “sturdy momentum” the company is seeing in international markets and suggested it needs to do more work in the Americas to grow again in the region.
“We are pleased with the progress we are making in optimizing our product mix in the U.S.,” McDonald said. “Looking ahead, we still have significant room for growth and we are confident in our team’s ability to deliver excellent results.”
Last quarter, McDonald said the company was seeing changing consumer dynamics in the Americas, but also noted that Lululemon made a mistake by not having the right sizes and colors in its stores, which negatively impacted sales. On a Wednesday call with analysts, McDonald said those problems persisted in the fiscal first quarter.
He said Lululemon’s color selection of leggings is too narrow and the company has once again run out of sizes desired by customers. McDonald added that the company did not purchase enough items to get to consumers, which led to product stocks running out. He expressed hope that the company would have a better inventory position in the second half of the year.
Lululemon continues to grow in the Americas, but at a much slower pace than last year. In the first quarter of this year, sales in the Americas increased 3% compared to 17% growth in the year-ago period. Comparable sales remained stable compared to last year.
Industry-wide, Lululemon’s comparable sales rose 6%, below the 7% growth analysts expected, according to StreetAccount.
As growth slows in the Americas, Lululemon issued tender guidance for the current quarter. According to LSEG, it expects revenue to be between $2.40 billion and $2.42 billion, slightly below estimates of $2.45 billion. Earnings per share were $2.92 to $2.97, compared with estimates of $3.02, according to LSEG.
The company appears to expect conditions to improve in the second half of the year. Lululemon expects full-year earnings per share of $14.27 to $14.47, higher than analysts’ expectations of $14.11. According to LSEG, it expects revenue to be between $10.7 billion and $10.8 billion, which is in line with expectations.
Lululemon, still widely considered a best-in-class retailer and market leader, has fallen on tough times lately. As of Wednesday’s close, the company’s shares had fallen 40% year-to-date as investors worried about the company’s growth prospects.
It recently announced that its longtime chief product officer Sun Choe would be stepping down, sending the company’s stock tumbling. Lululemon may also soon find itself on the other side of the trend. Denim is having a massive moment with consumers, and investors are concerned that shoppers may be swapping activewear for jeans, which could hit Lululemon’s profits.
