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Lululemon shares plunge 16% on weak forecasts, slowing growth in North America

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Actions of Lululemon plunged Friday after the sportswear retailer issued disappointing forecasts and reported weak sales in the United States, its largest market.

The retailer reported holiday results Thursday evening that beat expectations but showed its growth in North America is stagnating.

Here are the company’s results in its fiscal fourth quarter compared to what Wall Street expected, based on a survey of analysts by LSEG, formerly known as Refinitiv:

  • Earnings per share: $5.29 versus $5.00 expected
  • Revenue: $3.21 billion versus $3.19 billion expected

The company’s reported net income for the three months ended Jan. 28 was $669.5 million, or $5.29 per share, compared with $119.8 million, or 94 cents per share, a year ago. earlier.

Sales reached $3.21 billion, up about 16% from $2.77 billion a year earlier.

Lululemon shares closed down about 16% on Friday. As of Friday’s close, shares were down about 21% this year, significantly underperforming the S&P500which represents an increase of around 10% over this period.

Like its peers, Lululemon is grappling with uncertain demand and a slowdown in discretionary spending that is hitting the apparel sector particularly hard. Investors have been watching Lululemon’s performance in North America, its largest region by sales, as it faces tougher year-over-year comparisons and battles consumers who choose experiences over products like clothes and shoes.

During the quarter, sales increased 9% in the Americas region, compared to growth of 29% a year earlier. Although Lululemon continues to grow in the region, the pace has slowed significantly as Lululemon focuses on international expansion.

“As others in our industry have told you, there has been a shift in U.S. consumer behavior lately and we are experiencing a slower start to the year in this market,” said CEO Calvin McDonald during a conference call. with analysts on Thursday. “We view this as an opportunity to continue playing offense as we look to investments that will continue our growth trajectory. Outside of the U.S., our business remains strong.”

McDonald added that traffic and conversions were down in the United States. He attributed this to the lack of products in sizes zero to four, key sizes for the U.S. customer base and a lack of colorful items.

Meanwhile, international sales increased 54% on a reported basis, with growth of 78% in China and 36% in the rest of Lululemon’s markets.

Comparable sales rose 12% in the quarter, just below the 12.3% rise analysts expected, according to StreetAccount.

For the current quarter, Lululemon expects net revenue between $2.18 billion and $2.20 billion, representing growth of 9% to 10%. Analysts were forecasting $2.25 billion, or 12.5% ​​growth, according to LSEG.

It expects diluted earnings per share to be between $2.35 and $2.40, lower than the $2.55 analysts expected, according to LSEG.

For the full year, revenue is expected to be between $10.7 billion and $10.8 billion, compared to an estimate of $10.9 billion, according to LSEG.

It expects diluted earnings per share to be between $14 and $14.20 for the year, compared with an estimate of $14.13, according to LSEG.

Lululemon has long been one of the market leaders in women’s activewear, but the Vancouver-based company faces challenges more competition than ever. New entrants like Alo Yoga and Vuori have eaten into Lululemon’s market share, and it has had to work harder to stand out in the more crowded category.

The retailer has been working to expand its footwear offerings and grow its men’s business. During the quarter, it opened its first men’s store in Beijing, a key growth market for the company. In February, he launched its first sneaker for menCityVerse, and plans to launch new running styles for men and women, as performance sneakers continue to be a bright spot in an otherwise stagnant footwear market.

As the holiday approaches, McDonald said Black Friday was “the biggest day” in the company’s history and he was “encouraged” by the trends he was seeing early in the season. But the retailer’s outlook for the holiday quarter fell a bit short of analysts’ expectations.

In January, he raised this direction after seeing sales “balanced across channels, categories and geographies,” CFO Meghan Frank said in a press release.

Read the full results publication here.

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