Lululemon lowered guidance and posted the first revenue miss in more than two years there after botched the launch of a highly anticipated product and slowed growth in the Americas.
The company now expects full-year net revenue between $10.38 and $10.48 billion, down from a previous range of between $10.7 billion and $10.8 billion. Lululemon expects earnings per share to be in the range of $13.95 to $14.15, down from previous guidance of $14.27 to $14.47.
Here’s how the company fared in the fiscal second quarter compared to what Wall Street had anticipated, based on a survey of analysts by LSEG, formerly known as Refinitiv:
- Earnings per share: $3.15 vs. $2.93 expected
- result: $2.37 billion vs. $2.41 billion expected
Shares rose more than 2% in extended trade after initially falling.
The company’s reported net income for the three-month period ended July 28 was $393 million, or $3.15 per share, compared with $342 million, or $2.68 per share, a year earlier.
Sales rose to $2.37 billion, up about 7% from $2.21 billion a year earlier. Beyond total sales, Lululemon also missed expectations for comparable sales, which rose 2%, far short of estimates of 5.9%, according to StreetAccount. Comparable sales in America were down 3%.
The trend does not look poised to improve in the current quarter. Lululemon said it expects sales to grow 6% to 7%, worse than the 9.2% growth that analysts had expected, according to LSEG.
However, Lululemon’s earnings guidance was roughly in line with what Wall Street had anticipated. The company said it expects third-quarter earnings per share to be between $2.68 and $2.73, compared with estimates of $2.70, according to LSEG.
During the quarter, Lululemon pulled its Breezethrough leggings, launched in early July, after receiving a wave of complaints about the product not fitting.
In a call with analysts, CEO Calvin McDonald addressed Breezethrough’s launch and said it was an opportunity for the company to “test and learn.” He added that the company is buying small products for the launch.
“When the guests were excited by the fabric, the design did not meet their expectations. Listening to our guests is central to who we are and how we grow our brand, and we took the right step to pause in sales and hope to reintroduce the fabric in the future,” said McDonald. “This decision had an unavoidable impact on our performance this quarter.”
The botched launch came after the company struggled with other self-inflicted problems with its variety, including not having the colors and sizes that its core customers wanted, which had an impact on sales in the US During the period, sales grew by only 1% in America, the largest region company.
In a phone call with analysts, McDonald admitted that Lululemon’s women’s business has slowed down in the US. He said the company has identified “the most significant factor” affecting this is the lack of new styles, which has hurt lower sales and the company’s online business. .
“The novelty has done well. We just don’t have enough to inspire them to buy,” he said.
McDonald stressed that the Lululemon brand “remains strong in the US market” and said the men’s business continues to grow.
“Guests are looking for our products, coming to our stores and visiting our e-commerce site,” McDonald said.
Lululemon’s product challenges follow the departure of longtime Chief Product Officer Sun Choe, who stepped down in May to pursue other opportunities. At the time, the decision weighed on Lululemon’s stock amid concerns that Choe’s department would undermine the company’s ability to innovate and continue to win over customers with new trends.
McDonald said the company has a succession plan in place when Choe leaves, and said the company’s global creative director, Jonathan Cheung, will report directly to McDonald and oversee product design and innovation.
The company also appointed Nikki Neuburger as its new chief brand and product activation officer, overseeing merchandising, footwear, and product operations. On Thursday, McDonald said he and Neuberger were “happy” with the new structure, which puts design and merchandising on “equal footing” and “gives us the healthy balance we need to have in our product organization.”
“The team is working together and has taken action,” McDonald said.
Like other retailers seeing demand slow, Lululemon appears to be focusing on control: operations and efficiency. While the sales picture during the quarter was rougher than expected, Lululemon’s profit was higher than anticipated.
Gross profit grew 9% to $1.4 billion, while gross margin improved 0.8 percentage points to 59.6% – better than the 57.7% analysts had expected, according to StreetAccount. Operating margin and operating income also increased.
Sales rose 29% in Lululemon’s international markets as the company looked to China for growth.
