Lululemon Shares Tumble On Cautious Consumer Outlook

Lululemon's stock plunged in premarket trading as the company's forecast for first-quarter net revenue fell short of Wall Street's expectations. The athleisure brand blamed a slowdown in sales at its US stores for the underwhelming sales forecast. Additionally, Lululemon announced that fourth-quarter adjusted earnings per share missed estimates, prompting analysts to lower their price targets.

Late Thursday, Chief Executive Officer Calvin McDonald told analysts that US customers purchased fewer items than a year ago. He explained that customers "are a little soft coming into the year" but noted "strong momentum" at stores across all international markets, including Canada. 

Lululemon's 2024 outlook forecasted revenue to be in the range of $10.7 billion to $10.8 billion, representing growth of 11% to 12%, which is below the 19% recorded last year. 

The slowdown is sales has been across a wide variety of products. McDonald said the company would boost new product colors and more yoja pants sized between 0 and 4 to boost sales. 

Shares of Lululemon in New York in premarket trading were down as much as 13%. 

Bloomberg Intelligence analyst Poonam Goyal said the yoga-wear maker typically guides conservatively and then beats those forecasts: 

"They will beat their conservatively-set guidance. Plenty of opportunity exists — especially abroad and in men's."

Here's a snapshot of the fourth-quarter earnings (courtesy of Bloomberg): 

  • Adjusted EPS $4.40, estimate $5.00

  • EPS $5.29, estimate $5.00

  • Net revenue $3.21 billion, estimate $3.19 billion

  • Total comp sales constant currency +12%, estimate +13.5%

  • Gross margin 59.4%, estimate 58.7%

  • Operating margin 28.5%, estimate 28%

  • Inventory $1.32 billion, estimate $1.46 billion

  • Total location count 711, estimate 710

First quarter forecast: 

  • Sees net revenue $2.18 billion to $2.2 billion, estimate $2.26 billion (Bloomberg Consensus)

  • Sees EPS $2.35 to $2.40, estimate $2.55

And 2025 year forecast: 

  • Sees net revenue $10.7 billion to $10.8 billion, estimate $10.96 billion

  • Sees EPS $14 to $14.20

Here's more commentary from Wall Street analysts (courtesy of Bloomberg):

Piper Sandler, Abbie Zvejnieks (overweight)

  • Lululemon results for 4Q were strong, but quarter-to-date trends resulted in what was a "disappointing" outlook for the year 

  • While prepared for below-expectations growth, Zvejnieks says the level of deceleration seen in the US raises concerns on market share opportunity

  • "We think this could be a factor of lapping higher markdowns and a general spending lull between buying periods, and we will closely watch reception to spring products such as skirts, shorts, and tanks"

  • PT cut to $525 from $560

TD Cowen, John Kernan (outperform)

  • Guidance for 1Q is a reflection of the shift in US consumer behaviour, which has led to a slow start to FY24

  • "The macro environment is choppy and competitive environment is as challenging as ever with upstarts, but management's execution on gross margin and SG&A is evident"

  • PT cut to $515 from $553

Citi, Paul Lejuez (buy)

  • Comparable sales in China for 4Q were "impressive," but were overshadowed by a weaker performance in the US along with a further slowdown in 1Q

  • Management has attributed the slowdown to a softening consumer in the US, but Lejuez says it is "unclear why their higher-income consumer would be feeling incremental macro pressures"

  • Notes management plans to make additional marketing and product investments in 1Q to spark a re-acceleration in US growth starting in 2Q, though expects this to be viewed skeptically by the market until visibility is clearer

  •  Sees overhang of weakening US business weighing on share in near term 

  • PT cut to $500 from $520

Morgan Stanley, Alex Straton (overweight)

  • "Underwhelming" performance in North America, "disappointing" top-line guidance for 1Q and FY24, and the cautious quarter-to- date commentary on consumers "fueled the bear narrative"

  •  However, Straton thinks the guidance for 1Q and FY24 should prove to be beatable, which is part of the reason she remains overweight despite the expensive valuation

  • PT reduced to $490 from $539

Meanwhile, athletic apparel retailer Nike is down 6% in premarket trading on news of a sales squeeze, organizational restructuring, and a product transition phase. 

Perhaps this is the latest evidence some consumers are cracking under the weight of persistent inflation. 

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