Lululemon falls on cautious outlook, challenges in US market

LULULEMON Athletica offered a sales outlook for the first quarter and full year that fell short of Wall Street’s expectations, driving shares down in extended trading.

The company sees net revenue in the current fiscal year in the range of US$10.7 billion to US$10.8 billion, according to a statement. That would represent growth of 11 to 12 per cent, which is well below the 19 per cent it posted the previous year. The upper limit is also below analysts’ average estimate.

In a call with analysts, chief financial officer Meghan Frank flagged challenges in the United States. “We are navigating what has been a slower start to the year in this market,” she said. Chief executive officer Calvin McDonald said traffic at US stores had slowed, while remaining positive. Executives said performance remained strong in other markets.

The shares fell 10 per cent at 5.08 pm in late New York trading. The stock has slipped 6.3 per cent so far this year to Thursday’s (Mar 21) close, compared to a 9.9 per cent gain for the S&P 500 Index.

Lululemon’s performance has slowed in recent quarters following a stellar post-pandemic run. It is a relative slowdown, however: Quarterly sales have still grown by double digits while many US apparel companies have reported declines as consumers shift spending elsewhere.

The yogawear maker’s enduring appeal with high-income shoppers has allowed it in the past to sidestep volatility in demand that has hurt other brands. And it has frequently outperformed its guidance, leading investors to anticipate better-than-forecast results.

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“Lululemon typically guides conservatively, guiding low and then beating,” Bloomberg Intelligence analyst Poonam Goyal said. “So I suspect this to be the same. I think they will beat their conservatively set guidance. Plenty of opportunity exists – especially abroad and in men’s.”

The activewear company is focusing on international expansion, particularly in China, as competition rises in the US and competition ramps up with brands such as Alo Yoga and Vuori. It is also expanding its offering of accessories, footwear and men’s apparel to complement its robust sales of women’s leggings and other sportswear.

Products for men grew 15 per cent in the fourth quarter, which ended in late January, outpacing 13 per cent for women’s apparel. Accessories, meanwhile surged 40 per cent in the period. The Vancouver-based company expects to open 35 to 40 new stores this year, mainly in China.

International net revenue jumped 54 per cent while sales in the Americas increased a more modest 12 per cent. Lululemon expects to generate net revenue of US$12.5 billion by 2026, driven in part by a plan to bolster e-commerce, international sales and sales of men’s apparel. BLOOMBERG