Lulu stock: Apparel maker lowers annual sales forecasts following disappointing product launch

Lululemon Athletica Inc. (NASDAQ: LULU) is navigating turbulent waters as it lowers its financial guidance and reports its first revenue miss in over two years.

The setback comes after a problematic product launch and slower growth in its key Americas market.

In its latest financial update, Lululemon adjusted its full-year revenue forecast to a range of $10.38 billion to $10.48 billion, down from the previous estimate of $10.7 billion to $10.8 billion.

The company’s earnings per share (EPS) guidance was also revised lower, now expected to be between $13.95 and $14.15, compared to the earlier forecast of $14.27 to $14.47.

Lulu stock was trading at $259 at the time of writing.

Lululemon earnings Q2 2024

For the fiscal second quarter ending July 28, Lululemon reported an EPS of $3.15, surpassing the expected $2.93.

However, the company fell short on revenue, generating $2.37 billion against the anticipated $2.41 billion.

Despite this, shares saw a slight uptick of more than 2% in extended trading after an initial drop.

Net income for the quarter was $393 million, or $3.15 per share, up from $342 million, or $2.68 per share, a year ago.

While sales grew 7% year-over-year from $2.21 billion to $2.37 billion, the company missed expectations for comparable sales, which rose only 2% versus the forecasted 5.9%.

Particularly concerning was a 3% decline in comparable sales in the Americas.

Breezethrough leggings product launch woes

The company’s struggles were exacerbated by a poorly received product launch.

Lululemon recalled its Breezethrough leggings, which debuted in early July, following customer complaints about the product’s fit.

This misstep was part of a broader issue with the company’s product assortment, including mismatches in color and size preferences among its core customers.

These issues have contributed to a slowdown in Lululemon’s largest market, the Americas, where sales grew only 1% during the quarter.

Conversely, international markets, particularly China, saw a 29% increase in sales, highlighting the company’s growing focus on global expansion.

Despite the current challenges, CEO Calvin McDonald remains optimistic about the company’s future. “In the US, our teams continue to optimize our product assortment and remain focused on driving forward our opportunities in the market,” McDonald stated.

He expressed confidence in the company’s long-term prospects, despite the short-term difficulties.

Lululemon’s profit margins offered a silver lining in an otherwise tough quarter.

Gross profit increased by 9% to $1.4 billion, with the gross margin rising to 59.6%, surpassing analyst expectations of 57.7%. Both operating margin and operating income also saw improvements.