US Markets
Friday, August 30th, 2024 3:09 pm EDT
Key Points
- Revenue Miss and Lowered Guidance: Lululemon posted its first revenue miss in over two years, lowering its full-year net revenue guidance to $10.38 billion to $10.48 billion, down from previous expectations of $10.7 billion to $10.8 billion. Earnings per share guidance was also reduced.
- Product Launch and Sales Issues: The botched launch of the Breezethrough leggings and other product assortment challenges, including a lack of new styles and desired sizes, led to weaker sales in the U.S., particularly in the women’s segment. Sales in the Americas grew only 1%, impacting overall performance.
- Operational Focus and International Growth: Despite sales challenges, Lululemon’s profits exceeded expectations, with gross profit increasing by 9%. The company is focusing on operations and efficiency, while its international markets, especially China, showed strong growth with a 29% sales increase.
Lululemon recently reported its first revenue miss in over two years and subsequently lowered its full-year guidance due to a botched product launch and slowed growth in the Americas. The company now anticipates full-year net revenue between $10.38 billion and $10.48 billion, down from previous estimates of $10.7 billion to $10.8 billion. Earnings per share (EPS) projections were also revised to a range of $13.95 to $14.15, compared to earlier guidance of $14.27 to $14.47. Despite these challenges, Lululemon’s earnings per share for the fiscal second quarter exceeded expectations, coming in at $3.15 compared to the anticipated $2.93. However, revenue fell short at $2.37 billion, missing the expected $2.41 billion.
The company’s net income for the quarter ending July 28 was $393 million, a 15% increase from $342 million the previous year. Sales grew by 7% year-over-year to $2.37 billion, but comparable sales in the Americas, Lululemon’s largest region, declined by 3%, significantly missing the 5.9% growth forecasted by analysts. The company also revised its sales growth expectations for the current quarter to 6% to 7%, lower than the 9.2% growth analysts had projected.
One of the key issues during the quarter was the failed launch of the Breezethrough leggings, which were pulled from the market shortly after their release due to widespread customer complaints about the product’s fit. CEO Calvin McDonald acknowledged the misstep, framing it as a learning opportunity for the company. This incident followed other issues with Lululemon’s product assortment, including shortages in popular colors and sizes, which impacted sales in the U.S., particularly in the women’s segment. McDonald attributed the slowdown in this segment to a lack of new styles that failed to entice customers.
Despite these setbacks, McDonald emphasized that the Lululemon brand remains strong in the U.S., particularly in the men’s segment, which continues to grow. The company has implemented changes in its product design and innovation teams following the departure of its chief product officer, Sun Choe, in May. Jonathan Cheung, the global creative director, now oversees product design, and Nikki Neuburger has been appointed as the chief brand and product activation officer. McDonald expressed confidence in the new leadership structure, which aims to balance design and merchandising more effectively.
While Lululemon faced challenges in sales, its profitability exceeded expectations. The company’s gross profit rose by 9% to $1.4 billion, and its gross margin increased to 59.6%, surpassing the expected 57.7%. Operating margin and income also saw improvements. International markets, particularly China, showed strong performance with a 29% increase in sales, highlighting Lululemon’s focus on expanding its global presence as a key growth strategy. Despite the rough quarter, Lululemon’s profits suggest that its operational and efficiency measures are paying off, even as it navigates a challenging retail environment.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/08/29/lululemon-lulu-earnings-q2-2024.html
