LululemonThe retailer's growth in the Americas, its largest market, appears to have stalled after the retailer on Wednesday reported flat comparable sales in the region and weak guidance for the current quarter.
The athletic apparel retailer easily beat Wall Street earnings estimates, but only narrowly beat revenue expectations. Lululemon's full fiscal year guidance suggests the company is betting that conditions will improve in the back half of the year.
Here's what Lululemon did in its fiscal first quarter compared to what Wall Street expected, based on a survey of analysts conducted by LSEG:
EPS: $2.54 vs. $2.38 expected Revenue: $2.21 billion vs. $2.19 billion expected
Despite the tepid growth, Lululemon stock jumped 10% in extended trading Wednesday. The company also announced that it will add $1 billion to its stock buyback program.
The company's reported net income for the three-month period ending April 28 was $321 million, or $2.54 per share, compared to $290 million, or $2.28 per share, the previous year.
Sales rose to $2.21 billion, up about 10% from $2 billion the previous year.
In a press release, CEO Calvin MacDonald praised the “strong momentum” the company is seeing in its international markets and hinted that it needs to do more work in the Americas to grow in the region again.
“We are pleased with the progress we are making to improve our U.S. product lineup,” McDonald said. “Looking to the future, we still have great runway for growth and are confident in our team’s ability to perform strongly.”
Last quarter, McDonald said the company was seeing a change in consumer dynamics in the Americas, but she also noted that Lululemon floundered due to a lack of the right sizes and colors in its stores, which led to declining sales. During a call with analysts on Wednesday, McDonald said these issues continued during the fiscal first quarter.
Lululemon's color assortment was too narrow for leggings, he said, and the company again ran out of stock in the sizes its customers wanted. MacDonald added that the company did not purchase enough of the items that were running low on consumers, which led to the products being out of stock. He said he expects the company to be in a better inventory position in the second half of the year.
Lululemon is still growing in the Americas, but at a much slower pace than last year. During the first quarter of this year, sales in the Americas increased by 3%, compared to a 17% jump in the same period last year. Comparable sales were flat from last year.
Across the business, Lululemon's comparable sales grew 6%, less than the 7% increase analysts had expected, according to StreetAccount.
With growth slowing in the Americas, Lululemon issued weak guidance for the current quarter. It expects revenue to be between $2.40 billion and $2.42 billion, slightly below estimates of $2.45 billion, according to LSEG. It guided earnings per share at between $2.92 and $2.97, compared to estimates of $3.02, according to LSEG.
The company seems to expect conditions to improve in the second half of the year. For the full year, Lululemon expects earnings per share to range between $14.27 and $14.47, ahead of the $14.11 that analysts expected. It expects revenue to be between $10.7 billion and $10.8 billion, which is in line with expectations, according to LSEG.
Lululemon, still widely considered a top retailer and market leader, has faced some difficulties recently. Its stock is down 40% year to date as of Wednesday's close, as investors become concerned about its growth prospects.
It recently announced that its long-time chief product officer, Sun Choi, would resign, causing shares to decline. Lululemon may soon find itself on the other side of the trends. Denim is having a big moment with consumers, and investors are concerned that shoppers may trade in athletic wear for jeans, which could trickle down to Lululemon's main line.
Read the full earnings release here.
