Lululemon’s growth in the Americas, its largest market, appears to be slowing down as the retailer reported flat comparable sales in the region and weak guidance for the current quarter. Despite beating Wall Street’s earnings estimates, the company only narrowly topped revenue expectations. CEO Calvin McDonald acknowledged that Lululemon needs to do more work in the Americas to reignite growth in the region. Sales in the Americas increased 3% in the first quarter of this year, compared to a 17% jump in the same period last year, with comparable sales remaining flat.
The company reported net income of $321 million, or $2.54 per share, for the three-month period that ended April 28, up from $290 million, or $2.28 per share, a year earlier. Sales rose to $2.21 billion, a 10% increase from $2 billion the previous year. McDonald highlighted the “strong momentum” in international markets and expressed confidence in the team’s ability to powerfully deliver on growth opportunities. Despite challenges in the Americas, Lululemon remains optimistic about its ability to optimize product assortment and inventory management moving forward.
During a call with analysts, McDonald admitted that Lululemon faced challenges in the Americas with issues related to inventory, size availability, and color assortment. He noted that the company did not buy enough of the items that resonated with consumers, leading to products being out of stock. However, McDonald expressed optimism that Lululemon would be in a better inventory position in the second half of the year. The company also announced plans to add $1 billion to its stock buyback program.
Looking ahead, Lululemon issued weak guidance for the current quarter, expecting revenue to be between $2.40 billion and $2.42 billion, slightly below estimates. Earnings per share are projected to be between $2.92 and $2.97, compared to estimates of $3.02. However, for the full year, Lululemon expects earnings per share to be between $14.27 and $14.47, ahead of analyst expectations. It forecasts revenue to be between $10.7 billion and $10.8 billion, in line with expectations. The company is banking on conditions improving in the second half of the year to drive growth.
Lululemon, known for being a best-in-class retailer, has faced challenges recently that have impacted its stock performance, which is down 40% year to date. The departure of Chief Product Officer Sun Choe and concerns about changing consumer trends, such as a potential shift from athleisure to denim, have contributed to investor uncertainty. However, Lululemon remains confident in its ability to navigate these challenges and capitalize on growth opportunities. Despite the current setbacks, the company is focused on optimizing its product assortment and inventory management to drive future success.
Overall, Lululemon’s first-quarter performance, marked by flat sales in the Americas and weak guidance for the current quarter, reflects a challenging period for the retailer. However, the company remains optimistic about its growth prospects and is focused on addressing issues related to product assortment, inventory management, and consumer preferences. With a strategic focus on optimizing operations in the Americas and driving growth internationally, Lululemon aims to regain momentum and deliver strong results in the coming quarters.
