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Lululemon Athletica cut its annual sales and profit forecasts on Thursday, hurt by increased competition and selective consumer spending in North America for its pricey leggings and tank tops.
Its shares, which have lost nearly half of their value this year, reversed early losses to rise 2.3 percent after the bell, as second-quarter profit beat Wall Street expectations.
The company has seen a slow start to 2024 as sales moderate after years of strong growth as persistent inflation led to selective spending by shoppers.
“This was a rare miss for Lululemon and reflects missteps in product strategy and execution at a time when the stakes are higher due to unsteady trends in U.S. consumer spending,” said Sky Canaves, an analyst with Emarketer.
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Comparable sales rose 2 percent, but missed expectations of a 6.05 percent increase, according to LSEG data, driven by a 3 percent decline in sales in Americas. Comparable sale surged 21 percent in China.
The company’s sales also suffered as it had to pull its newly launched “Breezethrough” leggings from stores and website within weeks of its July launch as customers complained about the fit, material and seams.
The hiccup comes against the backdrop of Lululemon struggling to grow its sales due to lower stock of smaller sizes and color for its women’s apparel.
The forecast cuts also signal a tougher holiday sales owing to weak growth and competition from Alo, Vuori and Rhone, brands that have grown rapidly in recent years, analysts have said.
“Athleisure spending continues to wane overall but we have also seen Alo and Vuori continue to gain share against Lulu,” Jefferies analyst Randy Konik said.
The company expects fiscal 2024 net revenue in the range of $10.38 billion to $10.48 billion compared with a prior forecast of $10.70 billion to $10.80 billion.
It expects to earn $13.95 to $14.15 per share compared with its previous forecast of between $14.27 to $14.47.
In the second quarter, it earned $3.15 per share, better than LSEG estimates of $2.93.
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By Savyata Mishra
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When the company reports earnings today, analysts expect another quarter of slowing growth. The question is whether Lululemon’s ongoing slowdown is temporary or a sign that the brand is trapped in a downward spiral.
