- Americas sales down 2%
- Markdowns likely to come
- Full-year earnings guidance cut
Shares in Lululemon Athletica (LULU:NASDAQ) were squeezed 22% lower to $257 in after-hours trading on Wall Street after the Canadian athleisure specialist downgraded full-year earnings guidance, pinning the blame for its slowing growth on a ‘dynamic macroenvironment’ which is stoking US consumer caution.
The guidance cut overshadowed forecast-beating first-quarter earnings from the Vancouver-based yoga-pants-to-belt-bags purveyor and prompted broker Jefferies to insist there is ‘no more juice in the lemon’.
GUIDANCE MASSAGED LOWER
For the quarter ended 4 May 2025, Lululemon’s revenues rose 7% to $2.37 billion (£1.75 billion) and earnings per share came in at $2.60, ahead of the $2.36 billion and $2.58 Wall Street expected respectively, albeit earnings were boosted by $430.4 million worth of share buybacks.
With the US consumer feeling more cautious amid uncertainty over President Trump’s tariffs, Americas comparable sales decreased by 2% in the quarter.
Lululemon downgraded its full-year earnings per share guidance to the $14.58 to $14.78 range, south of its previous guidance for earnings in the $14.95 to $15.15 range.
And while the company maintained its full-year 2025 revenue guidance in the $11.15 billion to $11.3 billion range, this was light of the $11.24 billion analysts were predicting.
PLAYING OFFENSE
Putting a positive spin on things, chief executive Calvin McDonald said Lululemon achieved growth ‘across channels, categories, and markets, including the US, reflecting the continued strength and agility of our business model. Additionally, guests responded well to the product innovations, newness, and brand activations we delivered around the world.’
McDonald added: ‘As we navigate the dynamic macroenvironment, we intend to leverage our strong financial position and competitive advantages to play offense, while we continue to invest in the growth opportunities in front of us.’
However, Jefferies said fixing the core Americas business should be the top priority for management, which instead appears focused on expansion in China, where growth slowed dramatically in the quarter, and on product newness.
Reiterating its ‘underperform’ rating on the stock, basically a ‘sell’ recommendation, the broker also flagged Lululemon’s sky high inventories, which ballooned by 23% to $1.7 billion in the quarter, signaling slow-moving product which will probably necessitate increased markdowns to shift.
‘We believe this brand is rolling over while the competition is rising and the company can no longer find earnings beats,’ wrote Jefferies. ‘2025 will see USA total sales go negative and we expect earnings will go down too and revisions could be severe to the downside.’
