Lululemon Shares Tumble On Cautious Consumer Outlook
Lululemon's stock plunged in premarket trading as the company's forecast for first-quarter net revenue fell short of Wall Street's expectations. The athleisure brand blamed a slowdown in sales at its US stores for the underwhelming sales forecast. Additionally, Lululemon announced that fourth-quarter adjusted earnings per share missed estimates, prompting analysts to lower their price targets.
Late Thursday, Chief Executive Officer Calvin McDonald told analysts that US customers purchased fewer items than a year ago. He explained that customers "are a little soft coming into the year" but noted "strong momentum" at stores across all international markets, including Canada.
Lululemon's 2024 outlook forecasted revenue to be in the range of $10.7 billion to $10.8 billion, representing growth of 11% to 12%, which is below the 19% recorded last year.
The slowdown is sales has been across a wide variety of products. McDonald said the company would boost new product colors and more yoja pants sized between 0 and 4 to boost sales.
Shares of Lululemon in New York in premarket trading were down as much as 13%.
Bloomberg Intelligence analyst Poonam Goyal said the yoga-wear maker typically guides conservatively and then beats those forecasts:
"They will beat their conservatively-set guidance. Plenty of opportunity exists — especially abroad and in men's."
Here's a snapshot of the fourth-quarter earnings (courtesy of Bloomberg):
Adjusted EPS $4.40, estimate $5.00
EPS $5.29, estimate $5.00
Net revenue $3.21 billion, estimate $3.19 billion
Total comp sales constant currency +12%, estimate +13.5%
Gross margin 59.4%, estimate 58.7%
Operating margin 28.5%, estimate 28%
Inventory $1.32 billion, estimate $1.46 billion
Total location count 711, estimate 710
First quarter forecast:
Sees net revenue $2.18 billion to $2.2 billion, estimate $2.26 billion (Bloomberg Consensus)
Sees EPS $2.35 to $2.40, estimate $2.55
And 2025 year forecast:
Sees net revenue $10.7 billion to $10.8 billion, estimate $10.96 billion
Sees EPS $14 to $14.20
Here's more commentary from Wall Street analysts (courtesy of Bloomberg):
Piper Sandler, Abbie Zvejnieks (overweight)
Lululemon results for 4Q were strong, but quarter-to-date trends resulted in what was a "disappointing" outlook for the year
While prepared for below-expectations growth, Zvejnieks says the level of deceleration seen in the US raises concerns on market share opportunity
"We think this could be a factor of lapping higher markdowns and a general spending lull between buying periods, and we will closely watch reception to spring products such as skirts, shorts, and tanks"
PT cut to $525 from $560
TD Cowen, John Kernan (outperform)
Guidance for 1Q is a reflection of the shift in US consumer behaviour, which has led to a slow start to FY24
"The macro environment is choppy and competitive environment is as challenging as ever with upstarts, but management's execution on gross margin and SG&A is evident"
PT cut to $515 from $553
Citi, Paul Lejuez (buy)
Comparable sales in China for 4Q were "impressive," but were overshadowed by a weaker performance in the US along with a further slowdown in 1Q
Management has attributed the slowdown to a softening consumer in the US, but Lejuez says it is "unclear why their higher-income consumer would be feeling incremental macro pressures"
Notes management plans to make additional marketing and product investments in 1Q to spark a re-acceleration in US growth starting in 2Q, though expects this to be viewed skeptically by the market until visibility is clearer
Sees overhang of weakening US business weighing on share in near term
PT cut to $500 from $520
Morgan Stanley, Alex Straton (overweight)
"Underwhelming" performance in North America, "disappointing" top-line guidance for 1Q and FY24, and the cautious quarter-to- date commentary on consumers "fueled the bear narrative"
However, Straton thinks the guidance for 1Q and FY24 should prove to be beatable, which is part of the reason she remains overweight despite the expensive valuation
PT reduced to $490 from $539
Meanwhile, athletic apparel retailer Nike is down 6% in premarket trading on news of a sales squeeze, organizational restructuring, and a product transition phase.
Perhaps this is the latest evidence some consumers are cracking under the weight of persistent inflation.