Source: Jin10 Data
Despite stagnant growth in the Americas market and weak second-quarter guidance, Lululemon's stock price rose 9% against the trend after the financial report was released.
$Lululemon Athletica (LULU.US)$Exceeded Wall Street's profit and revenue expectations, but due to slowing growth in its largest market - the Americas, it released weak second-quarter guidance. Last quarter, the company was unable to provide the right sizes and colors in its US stores, leading to sales setbacks.
CEO Calvin McDonald emphasized Lululemon's growth in international markets and said there was more work to be done in the Americas.
On Wednesday, the athletic clothing retailer reported flat comparable sales in the Americas and issued a soft guidance for the current quarter, indicating that its growth in the largest market appeared to be stalling. Nevertheless, Lululemon easily beat profit expectations on Wall Street and revenue only slightly exceeded expectations. Lululemon's full-year guidance suggests that the company expects improvement in the second half of the year.
Here is a comparison of Lululemon's performance in the first quarter versus Wall Street expectations based on LSEG analyst surveys:
Earnings per share: $2.54 vs. market expectations of $2.38
Revenue: $2.21 billion vs. market expectations of $2.19 billion
Despite sluggish growth, Lululemon's stock rose 9% in pre-market trading on Wednesday. The company also announced plans to increase share buybacks by $1 billion.
For the three months ended April 28, Lululemon's net income was $321 million, or $2.54 per share, up from $290 million, or $2.28 per share, in the same period last year. Sales increased by about 10% year-over-year to $2.21 billion.
At the press conference, CEO Calvin McDonald said he saw "strong momentum" in the company's international markets and hinted at the need to do more work in the Americas to restore growth. "We're pleased with the progress we've made in optimizing our product assortment in the US," McDonald said. "Looking ahead, we still see significant growth levers and have a high degree of confidence in our team's ability to execute."
Last quarter, McDonald said there had been shifts in consumer dynamics for the company in the Americas, but also pointed out that Lululemon's sales were hurt by not offering the right sizes and colors. On Wednesday's call with analysts, McDonald said those issues were still present in the first quarter. He said Lululemon had too narrow a range of colors for its leggings, while the sizes customers wanted were out of stock. McDonald added that the company didn't purchase enough popular merchandise, resulting in out-of-stock products. He expected the company to have better inventory conditions in the second half of the year.
Lululemon is still growing in the Americas, but much slower than last year. Sales in the region grew 3% in the first quarter of this year, compared to 17% growth in the same period last year. Comparable sales were flat year-over-year. Overall comparative sales growth was 6%, below analyst expectations of 7%, according to StreetAccount data.
With growth in the Americas slowing, Lululemon issued a soft guidance for the current quarter. The company expects revenue to be between $2.4 billion and $2.42 billion, slightly below LSEG's estimated $2.45 billion. Earnings are expected to be between $2.92 and $2.97 per share, below LSEG's estimated $3.02 per share.
The company appears to expect improvement in the second half of the year. Lululemon expects earnings per share for the full year to be between $14.27 and $14.47, higher than analyst expectations of $14.11. Revenue is expected to be between $10.7 billion and $10.8 billion, in line with expectations.
Lululemon is still widely regarded as a top retailer and market leader, but has recently faced some challenges. At the close on Wednesday, Lululemon's shares were down 40% year-to-date amid concerns about its growth prospects. The company recently announced that its long-time Chief Product Officer, Sun Choe, will resign, which caused the stock price to fall. Lululemon may also face challenges from changing trends. Denim is currently popular with consumers, and investors worry that shoppers may switch from casual athletic wear to jeans, which could impact Lululemon's revenue.
Editor / jayden