Lululemon, the popular athleisure brand, recently experienced a setback as it posted its first revenue miss in over two years and lowered its guidance. The company faced challenges with a highly anticipated product launch, which led to a decline in growth in the Americas. As a result, Lululemon revised its full-year net revenue expectations to be between $10.38 and $10.48 billion, down from the previous range of $10.7 billion to $10.8 billion. The company also adjusted its earnings per share forecast to a range of $13.95 to $14.15, compared to the previous guidance of $14.27 to $14.47.
Despite the disappointing results, Lululemon’s second-quarter performance exceeded Wall Street’s expectations. The company reported earnings per share of $3.15, surpassing the estimated $2.93, and generated $2.37 billion in revenue, slightly lower than the anticipated $2.41 billion. Initially, the stock fell, but it later rose more than 2% in extended trading.
Lululemon’s net income for the quarter was $393 million, compared to $342 million in the same period last year. Sales also increased by 7% to $2.37 billion, up from $2.21 billion in the previous year. However, the company fell short of expectations on comparable sales, which only grew by 2% instead of the estimated 5.9%. Additionally, comparable sales in the Americas actually declined by 3%.
Looking ahead, Lululemon’s growth prospects for the current quarter appear to be subdued. The company expects sales to grow by 6% to 7%, which is lower than the anticipated 9.2% growth. Despite this, Lululemon’s profit guidance aligns with Wall Street’s expectations. The company projects third-quarter earnings per share to be between $2.68 and $2.73, compared to the estimated $2.70.
One contributing factor to Lululemon’s recent challenges was the unsuccessful launch of its Breezethrough leggings. After receiving numerous complaints about the product’s unflattering fit, the company decided to pause sales and reevaluate. CEO Calvin McDonald acknowledged the misstep and emphasized the importance of listening to customers. He assured that the decision to pull the leggings had a minimal impact on the company’s overall performance.
The product launch failure was not the only issue Lululemon faced. The company also struggled with meeting customer demands in terms of colors and sizes, which affected sales in the U.S. market. McDonald attributed the slowdown in the women’s business to a lack of new styles, particularly in bottoms and online offerings. However, he emphasized that the Lululemon brand remains strong in the U.S., and the men’s business continues to grow.
To address these challenges, Lululemon made changes within its leadership team. The company appointed Jonathan Cheung, the global creative director, to oversee product design and innovation. They also brought in Nikki Neuburger as the new chief brand and product activation officer to manage merchandising and product operations. McDonald expressed confidence in the new structure and highlighted the collaboration between design and merchandising teams.
Despite the revenue miss, Lululemon’s profitability fared better than expected. The company’s gross profit increased by 9% to $1.4 billion, and its gross margin improved to 59.6%, surpassing analysts’ expectations. Lululemon’s focus on operations and efficiency has contributed to its strong financial performance, even in the face of slowing demand. The company’s international markets, particularly China, have shown significant growth, with sales jumping by 29%.
In conclusion, while Lululemon faced challenges with a failed product launch and a slowdown in sales growth, the company managed to outperform Wall Street’s earnings expectations. By addressing product issues, enhancing leadership, and prioritizing operations, Lululemon aims to regain momentum and continue its success in the athleisure market.
