lululemon On Thursday, the company lowered its guidance and reported revenue below forecasts for the first time in more than two years after its much-anticipated product launch failed and growth slowed in the Americas.
The company now expects full-year net income of $1.038 to $10.48 billion, down from the previous range of $10.7 billion to $10.8 billion. Lululemon expects earnings per share to be in a range of $13.95 to $14.15, down from previous guidance of $14.27 to $14.47.
Here’s how the company’s fiscal second-quarter performance compared to Wall Street expectations, according to a survey of analysts by LSEG (formerly Refinitiv):
- Earnings per share: $3.15 Expected to be $2.93
- income: US$2.37 billion Expected to be $2.41 billion
Shares rose more than 2% in after-hours trading after initially falling.
The company reported net income of $393 million, or $3.15 a share, for the three-month period ended July 28, compared with $342 million, or $2.68 a share, a year earlier.
Sales increased to US$2.37 billion, an increase of approximately 7% from US$2.21 billion in the same period last year. In addition to total sales, Lululemon’s comparable sales also fell short of expectations, with annual sales growing 2%, far below expectations of 5.9%, according to StreetAccount. Comparable sales in the Americas fell 3%.
This trend appears to be showing no signs of improving this season. Lululemon expects sales to grow 6% to 7%, below analysts’ expectations of 9.2%, according to LSEG.
However, Lululemon’s profit guidance was broadly in line with Wall Street’s expectations. According to LSEG, the company expects third-quarter earnings per share to be between $2.68 and $2.73, compared with expectations of $2.70.
This quarter, Lululemon removed its Breezethrough leggings, launched in early July, after the company received a wave of complaints about the product’s ill-fitting fit.
In a conference call with analysts, CEO Calvin McDonald discussed the launch of Breezethrough and said it was an opportunity for the company to “test and learn.” He added that the company purchased a small amount of the product for the launch.
“While guests were excited about the fabric, the design did not meet their expectations. Listening to our guests is critical to who we are and how we grow our brand, and we have taken the right steps by pausing sales and looking forward to relaunching in the future fabric,” McDonald said. “This decision will have a negligible impact on our results for the current quarter.”
The failed launch comes after the company encountered other self-inflicted problems with its product range, including not having the colors and sizes that core customers wanted, which impacted U.S. sales. is the company’s largest region.
On a conference call with analysts, McDonald acknowledged that Lululemon’s women’s business in the U.S. has slowed, saying the company has identified the “most significant factor” affecting the segment as a lack of new styles, which has hurt sales of bottoms. and the company’s online business.
“We performed well. We just didn’t have enough freshness to inspire her to buy,” he said.
McDonald’s insisted the Lululemon brand “remains strong in the U.S. market” and said its menswear business continues to grow.
“Customers are looking for our products, coming into our stores and visiting our e-commerce site,” McDonald said.
Lululemon’s product challenges follow the departure of its longtime chief product officer, Sun Choe, who resigned in May to pursue another opportunity. At the time, the decision weighed on Lululemon’s stock price amid concerns that Choe’s division would hurt the company’s ability to innovate and continue to win customers with trendy new styles.
McDonald’s said it has a succession plan in place upon Choe’s departure and said the company’s global creative director, Jonathan Cheung, will report directly to McDonald’s and oversee product design and innovation.
The company also named Nikki Neuburger as its new chief brand and product activation officer, who will oversee sales, footwear and product operations. On Thursday, McDonald said he and Newberg were “pleased” with the new structure, which puts design and sales on “equal footing” and “re-establishes the healthy balance that must exist within the product organization.”
“The teams are working well together and are already hitting the ground running,” McDonald said.
Like other retailers seeing demand slow, Lululemon appears to be focusing on things within its control: operations and efficiency. Although sales for the quarter were lower than expected, Lululemon’s profits were higher than expected.
According to data from StreetAccount, gross profit increased by 9% to US$1.4 billion, and gross profit margin increased by 0.8 percentage points to 59.6%, which was better than analysts’ expectations of 57.7%. Its operating margin and operating income also increased.
Lululemon has set its sights on China for growth, and its international market sales soared 29%.
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