Lululemon, the athletic apparel retailer, reported flat comparable sales in its largest market, the Americas, and weak guidance for the current quarter. Despite this, the company beat Wall Street’s earnings estimates and saw its stock jump 10% in extended trading. Lululemon also announced that it would add $1 billion to its stock buyback program.
In the first fiscal quarter, Lululemon reported earnings per share of $2.54, surpassing the expected $2.38. Revenue came in at $2.21 billion, slightly higher than the anticipated $2.19 billion. The company’s net income for the period was $321 million, compared to $290 million a year earlier. Sales rose by 10% to $2.21 billion.
CEO Calvin McDonald highlighted the “strong momentum” in international markets but acknowledged the need for more work in the Americas to drive growth in the region. McDonald attributed the slower growth in the Americas to issues with product assortment, including not having the right sizes and colors in stores. He also mentioned that Lululemon didn’t purchase enough of the items that were popular with consumers, leading to products being out of stock.
While Lululemon’s growth in the Americas has slowed compared to last year, it is still expanding, albeit at a much slower pace. Sales in the Americas increased by 3% in the first quarter, compared to a 17% jump in the same period last year. Comparable sales remained flat from last year. Overall, Lululemon’s comparable sales grew by 6%, slightly below analysts’ expectations of a 7% increase.
Looking ahead, Lululemon issued weak guidance for the current quarter, with revenue expected to be between $2.40 billion and $2.42 billion, slightly below estimates of $2.45 billion. The company also guided earnings per share to be between $2.92 and $2.97, lower than the expected $3.02. However, for the full year, Lululemon expects earnings per share to be between $14.27 and $14.47, beating analysts’ expectations of $14.11.
Lululemon, considered a best-in-class retailer and market leader, has faced challenges recently, reflected in its stock’s decline of 40% year to date. The resignation of the chief product officer and concerns about competition from denim have further affected investor confidence.
In conclusion, while Lululemon’s growth in the Americas has slowed, the company remains optimistic about its future prospects and expects conditions to improve in the second half of the year. With a focus on optimizing product assortment and addressing inventory issues, Lululemon aims to regain momentum in its largest market. However, increasing competition and changing consumer preferences pose challenges that the company will need to navigate effectively to sustain its position as a market leader in athletic apparel.
