LULULEMON Athletica lowered its sales and profit outlook for the year as increased competition and relentless inflation curb demand for its pricey yoga pants.
The company now sees sales of up to US$10.48 billion this year, down from the previous view of as much as US$10.8 billion, offered in early June. Chief financial officer Meghan Frank said the cut was due to “uncertainties” in the economy, including a shorter holiday season and the upcoming US elections.
Sales growth in North America is slowing as shoppers contend with inflation, higher interest rates and a cooling job market. Shopper preferences are also moving towards styles that are looser than the leggings Lululemon is known for. Comparable store sales fell 3 per cent in the category that includes the US in the second quarter ended Jul 28, missing analyst expectations. Company-wide, that metric rose 2 per cent in the period, slowing for a third consecutive quarter.
“We expect the company’s US business to continue to underperform as macro pressures weigh on the consumer, competition continues to increase, and fashion shifts further away from LULU’s core offering,” said Jefferies analyst Randal Konik, who recommends selling the shares, in a research note after the release.
Outside of North America, the company is still posting robust growth, with comparable sales rising 19 per cent. In mainland China, where the company is looking to expand, that measure gained 21 per cent.
Lululemon shares rose 4.8 per cent at 7.03 pm in extended trading in New York on Thursday, erasing an earlier decline. The stock has fallen 49 per cent so far in 2024 through Thursday’s close, versus a 17 per cent increase for the S&P 500 Index.
A NEWSLETTER FOR YOU
Friday, 2 pm
Lifestyle
Our picks of the latest dining, travel and leisure options to treat yourself.
Wedbush Securities analyst Tom Nikic said ahead of the results that a guidance cut from Lululemon was “pretty much baked into buyside expectations” after the Vancouver-based company paused sales of its Breezethrough tights and shorts in July. A revision could be a “clearing event” for investors to reset expectations and refocus on the company’s growth opportunities, Nikic wrote in a research note.
CEO Calvin McDonald said on Thursday’s earnings call that the decision to pause sales to address quality issues had a “negligible” impact on performance in the quarter. He said Lululemon plans to reintroduce the fabric at an unspecified date in the future. Analysts had previously seen Breezethrough as a key growth driver.
“While guests were excited by the fabric, the design didn’t meet their expectations,” he said, referring to customers.
McDonald’s team has been refining the company’s product assortment to meet demand as shoppers gravitate towards looser-fitting pants. But analysts have questioned some of the product strategies as rivals such as Alo Yoga and Beyond Yoga appear to gain market share.
McDonald said he was “disappointed with the recent performance in women’s”, citing missed opportunities because the retailer did not offer enough new products in both core and seasonal styles. BLOOMBERG
