Lululemon, a popular athletic apparel retailer, recently reported flat comparable sales in the Americas, its largest market. Despite beating Wall Street’s earnings estimates, the company only narrowly topped revenue expectations. The company’s full fiscal year guidance suggests that it is optimistic about conditions improving in the back half of the year.
In the first fiscal quarter, Lululemon reported earnings per share of $2.54, surpassing the expected $2.38, and revenue of $2.21 billion, slightly higher than the $2.19 billion anticipated. The stock jumped 10% in extended trading after the announcement, with the company also announcing a $1 billion stock buyback program. The reported net income for the quarter was $321 million, compared to $290 million a year earlier, with sales rising to $2.21 billion from $2 billion.
CEO Calvin McDonald acknowledged the need for further work in the Americas to reignite growth in the region. The company faced challenges with product assortment, particularly in terms of sizes and colors, resulting in lower sales. McDonald mentioned that the company’s color assortment in leggings was too narrow, and they were often out of stock of popular sizes. However, McDonald expressed confidence in the team’s ability to deliver growth.
While Lululemon is still growing in the Americas, the pace has slowed significantly compared to the previous year. Sales in the region increased by only 3% during the first quarter of the current year, in contrast to a 17% increase in the same period last year. Comparable sales remained flat from the previous year. The company issued weak guidance for the current quarter, expecting revenue below estimates at $2.40 billion to $2.42 billion, and earnings per share slightly lower than anticipated.
Lululemon, considered a best-in-class retailer and market leader, has faced challenges with its stock down 40% year-to-date. Concerns about growth prospects have contributed to this decline. The recent resignation of the chief product officer also added to investor worries. Additionally, the rise of denim as a major trend could pose a threat to Lululemon’s athleisure dominance, as consumers may shift their preferences from activewear to jeans.
While Lululemon continues to navigate challenges in its largest market, the company remains optimistic about its growth prospects. By addressing issues with product assortment and inventory management, Lululemon aims to regain momentum in the Americas. Investors will closely monitor the company’s performance in the coming quarters to assess its ability to overcome obstacles and sustain long-term success in the competitive retail landscape.