Lululemon Needs To Turn Its Fortune Around In The Americas

On Wednesday, Lululemon Athletica Inc. LULU surpassed Wall Street’s earnings and revenue estimates with its first fiscal quarter results. However, the Nike NYSE: NKE) and Adidas AG ADDYY rival also issued a weak second quarter outlook as it faces a slowdown at its largest market, the Americas, where it reported flat comparable sales. But, Lululemon stock still jumped 10% upon the report during extended trading on Wednesday.

Fiscal First Quarter Highlights

For the quarter ended on April 28th, Lululemon reported sales grew about 10% to $2.21 billion, surpassing LSEG’s estimate of $2.19 billion.

the athletic apparel retailer reported a net income of $321 million, or $2.54 per share, also surpassing LSEG’s estimate of $2.38 per share. Not having the right sizes and colors in its stores hit Lululemon’s sales for the second consecutive quarter. The color assortment was too narrow in leggings and there wasn’t enough stock of sizes its customers wanted, but management expects to sort out these issues during the second half of the year.  Sales in the Americas rose 3%, which is quite a deceleration compared to last year’s comparable quarter when they grew 17%. 

While comparable sales in America remained flat, overall, they grew 6%, which was still below StreetAccount’s 7% estimate.

Fiscal Second Quarter Outlook

For the current quarter, Lululemon guided for revenue between $2.40 billion and $2.42 billion, coming short of LSEG’s $2.45 billion estimate. As for earnings per share, Lululemon’s outlook is in the range from $2.92 to $2.97, also below LSEG’s estimate of $3.02.

Full year outlook shows Lululemon expects a more favorable remainder of the year.

As for 2024, Lululemon guided for earnings per share between $14.27 and $14.47, surpassing LSEG’s consensus estimate of $14.11. It guided for revenue between $10.7 billion and $10.8 billion, which is in line with LSEG’s estimate.

Lululemon could be going through a rougher patch than it is willing to admit.

Although admitting that work needs to be done for the Americas region whose growth has slowed down, CEO Calvin McDonald touted the “strong momentum” Lululemon is seeing at its international markets. But as of Wednesday’s close, Lululemon’s stock is 40% down year to date, with investors growing increasingly concerned about its growth, with the news of its longtime Chief Product Officer Sun Choe resigning also adding to their worries as Choe was known for brining constant innovation to the brand’s value proposition. Lululemon has changed the way millions of people dress, with even Nike rolling out copycat offerings, but as it expands beyond yoga, its main market is slowing down. It does count on higher-income shoppers for support in navigating various economic conditions, but even the mighty Nike is undergoing a cost-cutting strategy amid these challenging times. On June 4th, Bloomberg reported Nike layoffs even reached its headquarters in the Netherlands. Both Nike and Adidas are hoping that this summer’s Paris 2024 Olympics will boost sales and help them rebound. Lululemon received positive reviews Canada’s official Olympic kit it designed, but it will need to do something much more awesome to turn its fortunes around in the Americas. 

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