Key Takeaways
- The athletic retailer reported first-quarter revenue of $2.47 billion, representing 4% growth and exceeding the $2.43 billion estimate, though earnings per share declined to $1.69 from $2.60 in the prior year
- Comparable sales in the Americas region declined 5%, contrasting with a 13% increase internationally, including a 30% surge in Mainland China
- Annual revenue forecast reduced to $11 billion–$11.15 billion, significantly trailing the $11.47 billion Wall Street consensus
- Second-quarter EPS outlook of $1.76–$1.81 fell dramatically short of the $2.69 analyst projection
- Incoming CEO Heidi O’Neill won’t assume leadership until September, delaying any potential recovery strategy
Shares of Lululemon Athletica (LULU) had already declined 40% year-to-date before releasing first-quarter results. The athletic apparel company saw its stock tumble an additional 11% in extended trading Thursday after announcing significant reductions to its annual outlook, even as it managed to exceed first-quarter revenue projections.
Lululemon Athletica Inc., LULU
First-quarter net revenue reached $2.47 billion, marking a 4% year-over-year increase and surpassing the $2.43 billion analyst consensus. However, the positive momentum largely stopped there.
Net profit plummeted to $195 million from $314.5 million in the same quarter last year. Earnings per share on a diluted basis fell to $1.69 from $2.60, narrowly beating the $1.67 forecast. Operating profit decreased 37% to $276.9 million, while operating margin contracted by 730 basis points to 11.2%.
Gross profit margin declined 410 basis points to 54.2%. Management attributed 280 basis points of the compression to tariff-related impacts, with the remainder stemming from fixed cost pressures associated with softer performance in North America.
Regional performance painted contrasting pictures. Revenue in the Americas declined 3%, with comparable store sales falling 5%. International revenue surged 22%, fueled by strong performance in Mainland China, where revenue climbed 30% and comparable sales increased 20%.
Forecast Update Disappoints Investors
The revised guidance proved to be the biggest disappointment for shareholders. For the second quarter, Lululemon projects revenue between $2.45 billion and $2.47 billion, representing a 2%–3% sequential decline and falling substantially short of Wall Street’s $2.59 billion expectation. The second-quarter EPS forecast of $1.76–$1.81 compared unfavorably to analyst estimates of $2.69.
The annual revenue projection was lowered to $11 billion–$11.15 billion, essentially flat to slightly down, versus the Street consensus of $11.47 billion. Full-year earnings per share guidance came in at $10.95–$11.15, compared to expectations of $12.28. Management noted the forecast does not include potential refunds related to IEEPA tariffs.
During the quarter, the company bought back 2.2 million shares for $358.3 million and finished the period with 816 stores globally, a net addition of five locations.
Executive Transition Remains in Progress
The leadership situation continues to evolve. Previous CEO Calvin McDonald departed, and the organization is currently operating under interim co-CEOs until Heidi O’Neill, a veteran Nike executive, assumes control in September.
Interim co-CEO Meghan Frank highlighted several successful product launches during the quarter while conceding there were also shortcomings. She indicated the company plans to be “bolder” in the latter half of the fiscal year.
O’Neill’s selection failed to generate investor enthusiasm when initially announced, suggesting she faces a challenging task in restoring shareholder confidence upon her arrival.
At present trading levels, LULU carries a forward price-to-earnings ratio of approximately 10 based on its reduced full-year projections. The stock’s 52-week trading range spans $116.63–$275.60, with shares most recently changing hands near $125.
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