Lululemon Sees Decrease in Shares and Strong Demand

In its recent announcement, Lululemon reported robust demand during the third quarter and an encouraging start to the holiday shopping season. However, the company’s shares took a dip in extended trading due to a lukewarm outlook for the fourth quarter. Despite surpassing Wall Street expectations with adjusted earnings per share of $2.53 against an expected $2.28 and revenue of $2.20 billion versus the estimated $2.19 billion, the share prices fell around 3% in extended trading.

The net income for the quarter that ended in October was $249 million ($1.96 per share), a slight reduction from $255 million ($2 per share) the previous year. Even with sales increasing by about 19% from the previous year to $2.2 billion, and growth in North American and international sales by 12% and 49% respectively, Lululemon’s holiday guidance failed to meet expectations.

CEO Calvin McDonald highlighted that this year’s Black Friday marked the “single biggest day” in the company’s history and expressed optimism about the positive trends seen at the season’s start. Despite total comparable sales rising 13%, higher than expected, comparable sales in-store only increased by 9%, marking a disappointment. On a brighter note, direct-to-consumer sales saw a significant spike of 18%, exceeding expectations.

“As we enter the holiday season, we are pleased with our early performance and are well-positioned to deliver for our guests in the fourth quarter. I am energized by the significant opportunities ahead, and would like to thank our incredible teams around the world for their continued passion and commitment to our brand.”

Calvin McDonald, Lululemon CEO, via Lululemon

The company projected sales between $3.14 billion and $3.17 billion for the fourth quarter, which falls short of the analysts’ $3.18 billion prediction. Lululemon’s full-year sales are expected to range between $9.55 billion to $9.58 billion, contrasting with an estimate of $8.11 billion to $9.90 billion.

Lululemon faced a setback due to a $72.1 million impairment charge related to winding down Mirror, the connected fitness company acquired during the pandemic. This charge adds to an earlier $443 million impairment charge for the equipment. A new alliance with Peloton means Lululemon will cease selling the Mirror device and producing content for its Studio app, with Peloton stepping in to fill these roles. As a result, Lululemon will now become Peloton’s primary athletic apparel partner.