Shares of Canadian retailer Lululemon Athletica (NASDAQ:LULU) plunged 14% on Friday as the company came out with earnings for the fourth-quarter earnings. While the company beat out estimates in several ways, it was the outlook that investors weren’t so keen on.
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What happened?
Lululemon stock reported that fourth-quarter earnings hit US$5.29 per share, up from US$0.94 earnings per share (EPS) the year before. Revenue also surged by 16%, hitting US$3.21 billion.
This alone came far higher than the 13.6% increase to US$5 per share expected and 15.2% revenue growth. Instead, the Canadian retailer averaged 33.5% earnings growth, with an average revenue increase of 22.8%. Furthermore, net income hit US$669.5 million, compared with just US$119.8 million the year before.
Holiday earnings topped expectations for the company, with sales in North America rising 9%. However, that was compared to a rise of 29% the year before. And that was only the beginning of the rough road ahead.
Poor outlook
The big issue that investors had was the poor outlook for Lululemon stock. Growth seems to be stagnating, as it continues to come up with tougher comparisons. This comes as many retailers are struggling with uncertain demand as well as a slowdown in discretionary spending.
North America in particular was hit hard, as we saw, with growth of just 9%. And unfortunately, Lululemon stock doesn’t believe it will get better before it gets worse. For the first quarter, Lululemon stock expects to achieve net revenue of between US$2.18 billion and US$2.2 billion, which would be growth of between 9% and 10%. However, analysts were hoping for US$2.25 billion, or growth of 12.5%.
Furthermore, the full-year outlook was also lower. Sales are expected to achieve between US$10.7 and US$10.8 billion, again lower than the estimates of US$10.9 billion hoped for by analysts. It then anticipates earnings per share between US$14 and US$14.20 for the full year, compared to US$14.13 expected by analysts.
Management weighs in
Lululemon stock’s management didn’t beat around the bush. Instead of stating this would simply go away, chief executive officer Calvin McDonald stated in a call to analysts that there needs to be some changes — ones that would see a larger increase in traffic at its locations.
“As you’ve heard from others in our industry, there has been a shift in the U.S. consumer behaviour of late and we’re navigating what has been a slower start to the year in this market,” McDonald said. “We view this as an opportunity to keep playing offence as we lean into investments that will continue our growth trajectory. Outside the U.S., our business remains strong, and all our international markets in Canada.”
Part of this will come down to increasing the number of products in sizes zero to four as well as increasing “colourful items.” It’s also continuing to work on its footwear offerings and growing its men’s business. So, while there still seem to be some hurdles for Lululemon stock, perhaps continue to at least keep it on your watchlist for the next year.
