Lululemon store in Dubai
Tepid Q4 guidance raised concerns Lululemon could see growth rates sour short term / Image source: Adobe
  • Third quarter results beat forecasts
  • Positive start to Christmas season
  • Tepid Q4 outlook weighs on sentiment

One of the athleisure industry’s star turns, yoga lifestyle giant Lululemon (LULU:NASDAQ), delivered forecast-beating results (7 December) for the third quarter to 31 October and flagged a pleasing start to the Christmas shopping season.

Why then, did shares in the yoga-pants-to-belt-bags seller fall 2.6% to $452.5 in after-hours trading on Wall Street?

The reason was investor disappointment over Lululemon’s fourth quarter revenue guidance, which fell short of analysts’ estimates.

This rare miss raised concerns the Vancouver-headquartered company could see slower growth in the short term as US consumers pull in their horns.

STORE SALES SHOW SOME STRETCH

Lululemon, which sells clothing and footwear for yoga, running and training, generated third quarter sales of $2.2 billion, up 19% year-on-year and ahead of the $2.19 billion analysts were expecting.

Meanwhile comparable store sales were up 9%, a growth rate most retailers would kill for.

During the quarter, North America sales rose 12% and revenues were up an impressive 49% internationally, but the retailer’s holiday guidance came in light of expectations.

Lululemon is now expecting fourth quarter sales of between $3.14 billion and $3.17 billion, shy of the $3.18 billion analysts had pencilled in, but still implying double digit growth.

The company is now guiding to four quarter earnings per share in the $4.85 to $4.93 range, below the previously expected $4.94 per share.

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While the activewear retailer is delivering firm market share gains, fresh guidance shows growth is slowing.

This is more than likely due to the fact higher income consumers are prioritising spending on travel and entertainment over clothing.

Lululemon’s cautious tone for the holiday season echoes comments from the likes of Walmart (WMT:NYSE) and Best Buy (BBY:NYSE), as well as British bootmaker Dr. Martens (DOCS), which have highlighted a more wary US consumer ahead of Christmas.

WHAT DID THE CEO SAY?

Chief executive and endurance athlete Calvin McDonald insisted this was ‘another strong quarter’ for Lululemon, ‘as our innovative product offerings and community activations continued to powerfully resonate with our guests globally.’

McDonald added: ‘As we enter the holiday season, we are pleased with our early performance and are well-positioned to deliver for our guests in the fourth quarter. I am energized by the significant opportunities ahead, and would like to thank our incredible teams around the world for their continued passion and commitment to our brand.’

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Issue Date: 08 Dec 2023