DJ Lululemon Stock Is Falling Because the Bar for Earnings Was High -- Barrons.com

By Teresa Rivas

Lululemon Athletica stock was falling in after-hours trading on Tuesday, despite the athleisure apparel firm's better-than-expected fiscal second-quarter earnings.

Lululemon (ticker: LULU) said it earned 74 cents a share on revenue that rose 3% year over year -- excluding the effects of currency exchange -- to $902.9 million. Analysts were looking for the company to earn 56 cents on revenue of $844.5 million. That is an improvement from the company's disappointing fiscal first quarter, delivered in June.

However, Lululemon stock was down 3.9% to $336.27 near 5 p.m. Eastern time. That could be attributable to a number of factors, not least of which is the more than 50% run that the shares have notched this year, which set the bar high for financial results. The company didn't provide a full-year forecast, citing the pandemic, and didn't disclose same-store sales for the same reason, for the second quarter in a row.

Moreover, revenue at company-operated stores fell 51% to $287.2 million, while gross margin decreased 0.8 percentage point to 54.2%. Income from operations and operating margins both fell in the quarter as well.

One unequivocal bright spot was direct-to-consumer revenue, which jumped 157% -- on a constant dollar basis -- to $554.3 million, and represented 61.4% of total revenue, more than double the year-earlier 24.6% figure.

Direct-to-consumer business is a major area of focus for investors, with industries from snacks to sneakers looking to bypass middlemen, and in some cases stores themselves, to reach consumers through e-commerce. Lululemon and others have struggled to make up for store closures with online sales, although the increase is an encouraging sign.

Overall, bulls and bears could both pick what they liked from the report, hence the muted response. Lululemon fans will point to the top- and bottom-line beats and accelerating direct-to-consumer revenue. Skeptics will likely note that other retailers have provided comparable sales, no matter how abysmal, valuation, and the margin declines, which could reflect the higher cost of doing business online for some retailers.

The shares are up 51% year to date but fell almost 12% in regular trading Tuesday, on a day the Dow Jones Industrial Average lost more than 2%.

Write to Teresa Rivas at teresa.rivas@barrons.com

(END) Dow Jones Newswires

September 08, 2020 16:59 ET (20:59 GMT)

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