Lululemon The company cut its forecast and reported its first sales decline in greater than two years on Thursday after botching the launch of a highly anticipated product and slowing growth in North and South America.
The company now expects full-year net sales within the range of $10.38 billion to $10.48 billion, down from the previous range of $10.7 billion to $10.8 billion. Lululemon expects earnings per share within the range of $13.95 to $14.15, down from the previous guidance of $14.27 to $14.47.
Here’s how the corporate performed within the second fiscal quarter in comparison with Wall Street expectations, based on an analyst survey by LSEG (formerly often known as Refinitiv):
- Earnings per share: $3.15 in comparison with USD 2.93 expected
- Revenue: 2.37 billion US dollars in comparison with USD 2.41 billion expected
Shares rose greater than 2% in prolonged trading after initially falling.
The company reported net income for the three-month period ended July 28 was $393 million, or $3.15 per share, in comparison with $342 million, or $2.68 per share, a yr earlier.
Sales rose to $2.37 billion, up about 7 percent from $2.21 billion a yr ago. Aside from total sales, Lululemon also missed expectations for comparable sales, which rose 2 percent, well below estimates of 5.9 percent, in response to StreetAccount. Comparable sales within the Americas fell 3 percent.
An improvement on this trend shouldn’t be in sight in the present quarter. According to LSEG, Lululemon expects sales growth of 6 to 7 percent, which is below the 9.2 percent growth expected by analysts.
However, Lululemon’s earnings forecast is roughly according to Wall Street’s expectations. The company expects third-quarter earnings per share to be between $2.68 and $2.73, in comparison with estimates of $2.70, in response to LSEG.
During the quarter, Lululemon pulled its Breezethrough leggings, launched in early July, after receiving a wave of complaints concerning the product’s unflattering fit.
In a call with analysts, CEO Calvin McDonald discussed the launch of Breezethrough, saying it was a possibility for the corporate to “test and learn.” He added that the corporate purchased a small amount of the product for the launch.
“While guests loved the fabric, the design did not meet their expectations. Listening to our guests is central to our work and the evolution of our brand. We took the right step by pausing sales and look forward to reintroducing the fabric in the future,” McDonald said. “This decision had only a minor impact on our performance this quarter.”
The botched launch got here after the corporate struggled with other self-inflicted problems in its product line, including a scarcity of colours and sizes desired by its core customers, which impacted sales within the U.S. During the quarter, sales within the Americas, the corporate’s largest region, rose just 1%.
In a conference call with analysts, McDonald acknowledged that Lululemon’s women’s apparel business within the U.S. has slowed. He said the corporate concluded that the “most significant factor” affecting the segment was the dearth of latest styles, which has hurt bottoms sales and the corporate’s online business.
“Our new products were well received. We just didn’t have enough to inspire them to buy,” he said.
McDonald stressed that the Lululemon brand “remains strong in the U.S. market” and said the menswear business continues to grow.
“Guests are searching for our products, coming to our stores and visiting our e-commerce sites,” McDonald said.
Lululemon’s product woes follow the departure of longtime chief product officer Sun Choe, who resigned in May to pursue one other opportunity. At the time, the choice weighed on Lululemon’s stock amid concerns that Choe’s move would hamper the corporate’s ability to innovate and proceed to draw customers with trendy latest cuts.
McDonald said the corporate had made a succession plan on the time of Choe’s departure, adding that the corporate’s global creative director, Jonathan Cheung, will report on to McDonald and be liable for product design and innovation.
The company also named Nikki Neuburger as its latest chief brand and product activation officer, who will oversee merchandising, footwear and product activities. On Thursday, McDonald said he and Neuberger were “pleased” with the brand new structure, which puts design and merchandising on “equal footing” and “restores the healthy balance that needs to exist within a product organization.”
“The teams are working well together and are already in action,” McDonald said.
Like other retailers facing declining demand, Lululemon appears to be specializing in what it may possibly do: operations and efficiency. While sales were worse than expected for the quarter, Lululemon’s profits were higher than expected.
Gross profit rose 9% to $1.4 billion, while gross margin rose 0.8 percentage points to 59.6% – higher than the 57.7% expected by analysts, in response to StreetAccount. Operating margin and operating profit also rose.
Sales in Lululemon’s international markets increased 29% as the corporate focuses on China for growth.
