Lululemon Stocks Drop 10% On Weak Guidance, Slowing North American Growth

(CTN News) – Despite holiday earnings exceeding expectations, Lululemon’s North American growth is stagnant, resulting in below-estimated guidance.

Based on a survey of analysts by LSEG, formerly Refinitiv, here’s how the company did in its fourth fiscal quarter:

• Shares of $5.29 vs. $5.00 expected

• Expected $3.19 billion, but $3.21 billion

According to the company’s quarterly report, net income for the three months ended Jan. 28 was $669.9 million, or $5.29 per share, up from $119.8 million.

Over the past year, sales rose by 16% to $3.21 billion.

In extended trading, shares fell about 10%.

Lululemon has been affected by uncertain demand and a slowdown in discretionary spending, Which has particularly hurt the apparel space. Observers have watched how Lululemon performs in North America, its largest revenue region, as it contends with tougher prior year comparisons and increasingly savvy consumers.

Sales rose 9% in the Americas, compared with 29% growth last year. The rate of growth for Lululemon in the region has slowed significantly as the company expands internationally.

Sales in China grew 78%, while sales in the rest of Lululemon’s markets rose 36%.

Street Account estimates comparable sales grew 12.3% during the quarter.

Net revenue for Lululemon should be between $2.18 billion and $2.20 billion this quarter, representing 9% to 10% growth. LSEG forecast $2.25 billion, or 12.5% growth.

Analysts had expected $2.55 per share from diluted earnings, according to LSEG.

LSEG estimates $10.9 billion in sales for the full year, compared with $10.7 billion. The company expects diluted earnings per share between $14 and $14.20 this year, compared to LSEG’s estimate of $14.13.

According to CEO Calvin McDonald, there has been a shift in U.S. consumer behavior of late and the market has been slow to start, as others in our industry have noted. This is an opportunity to play offense as we make investments that will drive our growth. In Canada, all our international markets remain strong.”

The Vancouver-based company is facing more competition than ever for its women’s athletic apparel business. Alo Yoga and Vuori have taken market share from Lululemon, and it has had to compete harder to set itself apart.

Retailer is expanding its footwear offering and growing men’s business. China was a key growth market for the company during the quarter. Earlier this year, it launched its first men’s sneaker, CityVerse, and plans to roll out new running styles for both men and women. Performance sneakers remain a bright spot in an otherwise stagnant shoe market.

In the lead up to Black Friday, McDonald was “encouraged” by trends he observed. In its holiday-quarter outlook, analysts expected more.

A news release said sales were balanced across channels, categories, and geographies.

A previous range of $3.14 billion to $3.17 billion was expected for Lululemon’s fiscal fourth quarter net revenue. The company also raised its earnings guidance from $4.85 to $4.93 to $4.96 to $5 per share.

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