New CEO inherits a second guidance cut, a shrinking market share, and an impatient board
Lululemon Athletica shares closed 19.5 percent lower in New York on Friday, their weakest level since May 2018.
The Vancouver Sun reported the close, and Reuters put the intraday drop at about 18 percent with the stock near US$100, a slump that would erase roughly US$2.5bn in market value and take the decline this year to about 52 percent if the losses held.
According to Bloomberg, the company cut its full-year outlook for a second straight quarter, guiding to net revenue of US$10.35bn to US$10.5bn, down 5 to 7 percent, against earlier guidance of US$11bn to US$11.15bn.
Full-year earnings guidance fell to US$9.48 to US$9.73 per share from US$10.95 to US$11.15, CNBC reported, with third-quarter revenue forecast at US$2.29bn to US$2.32bn.
Second-quarter revenue reached US$2.42bn against the US$2.46bn analysts expected in an LSEG survey, per CNBC, while adjusted earnings of US$2.06 per share beat the US$1.79 consensus.
Comparable sales fell 9 percent, Bloomberg reported, the first decline since the pandemic period when the company suspended the measure.
Gross margin rose 200 basis points to 60.5 percent on tariff refunds of US$134.5m, according to Reuters.
Legging sales dropped about 20 percent in the quarter.
Reuters, citing M Science data, reported Lululemon's share of the athleisure market shrank 10 percentage points to 43.9 percent in August, while Alo gained 5.9 percentage points and Vuori 2.2. Revenue in the Americas declined 8 percent after rising 1 percent a year earlier.
“We expected a better response,” interim co-chief executive officer and chief financial officer Meghan Frank told analysts, as reported by Reuters.
CNBC quoted her on the same call saying: “We know there is much more work to be done.”
At least 12 brokerages lowered price targets, Reuters reported, with analysts flagging a cost structure built for growth as store square footage rose 11 percent.
The shares traded at about 11.50 times forward earnings against 20.76 for Nike and 13.41 for Adidas, per the same outlet, with US$1.4bn in cash and equivalents at quarter end.
GlobalData managing director Neil Saunders attributed the weakness to “an incredibly boring assortment, too much non-core product that misses on both fashionability and style, and an absence of good technical innovation,” in an emailed comment reported by Bloomberg.
Jefferies analysts led by Randal Konik wrote that the results “show brand momentum is fading fast and share losses are mounting,” according to the publication.
Former Nike executive Heidi O'Neill takes over as chief executive on September 8. Columbia Threadneedle senior equities analyst Mari Shor told Reuters that lead times in the business mean new initiatives could take several years to resonate.
Founder Chip Wilson is divorcing Shannon “Summer” Wilson, his wife of more than 20 years, Bloomberg reported, with a family proceeding filed in the Supreme Court of British Columbia in April and no prenuptial agreement in place.
He owns about 8.6 percent of Lululemon shares, worth a little less than US$1bn, and Summer Wilson holds close to 1 percent.
The Vancouver Sun reported that a contested divorce leading to an equal division of the couple's estimated US$6.1bn in assets could affect the share price.
