Lululemon slumps after holiday quarter guidance misses high expectations

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Lululemon Athletica (NASDAQ:LULU) fell in after-hours trading on Thursday despite posting a narrow earnings beat with Q3 report. Investors may have been looking for even stronger guidance for the holiday quarter.

Comparable sales at stores were up 22% during the quarter or 31% on a constant-currency basis..

Total revenue was up 28% during the quarter on a constant dollar basis, led by a 41% jump in international markets and 26% gain in North America.

Direct to consumer revenue rose 40% Y/Y to account for 40% of sales.

Gross margin was 55.9% of revenue vs. 54.6% a year ago. Adjusted operating margin fell 40 basis points during the quarter.

LULU opened 23 net new company-operated stores during the quarter to end with a store count of 623.

CFO Meghan Frank on the outlook: "We are proud to have delivered another quarter of strong sales and earnings growth, despite an operating environment that remains dynamic. These results illustrate the strength and differentiation of our omni operating model and position us well to deliver ongoing value for our stakeholders. We look forward to a strong finish to our fiscal year."

The company ended the quarter with its inventory position up 85% Y/Y to $1.7B. LULU believes its inventories are well positioned to support its expected revenue growth in the fourth quarter.

Looking ahead, LULU sees Q4 revenue of $2.61B to $2.66B vs. $2.66B consensus. EPS of $4.20 to $4.30 is anticipated vs $4.29 consensus. The midpoints of the ranges were below the consensus marks.

Shares of Lululemon (LULU) dropped 9.05% in after-hours trading to cut into recent gains. LULU has been on a hot streak with a +25% jump over the last two months.

Comments

[Who Dat?]

Has anyone heard of the brand Rhone? I just bought a full zip hoodie jacket that feels exactly like my old LULU hoodie jacket back in 2019. Their clothing lines are very similar to LULU menswear. It’s very high end and expensive for what you get

[Charles Agbakwu]

@Who Dat? I never understood the appeal of Lululemon, are their yoga pants for women really that much better? Their men's trousers are not better than something you could buy for 1/3 the price at a shop like banana republic

[Who Dat?]

@Charles Agbakwu
Their yoga wears are very high quality but ultimately, it's all about the name brand. Teens love them too.

I have a pair of LULU shorts but I think Costco cargo shorts are just as nice for 70% less!

As for Rhone, their logo looks almost exactly as LULU with the 3 bars on the left side clavicle.

[Azred]

I’ll buy into a starter position in the morning. Just got my two leggings pairs of LULU in today (resales), and positively love them! I remember when they were impossible to get ahold of years ago. I would try. So difficult. I love the App and bought some tonight, a couple of pairs on sale. Really should take a look more often because three pairs I really liked about all sizes were sold out, already!

[Djevans]

@Azred You might wanna wait for another 25% crash before buying - This company is very overpriced

[JackCr]

@Djevans
Def not worth 40x earnings........

[language police]

@Azred Can't find what you want, some stuff on sale, some sold out - and you want to own the stock?

[olde1two]

I guess all the smash and grabs that have been happening hurting sales and profits. Internet flea markets undercutting prices since their cost is nothing.

[Pinguino Investments]

Well, when life gives you Lululemons, make Lululemonade.

[diy88888]

@Pinguino Investments what a joke?!

[Pinguino Investments]

@diy88888 Thank you, I'm here all week.

[mosky moc]

thot stocks do well in recessions, $LULU will be fine

[HeyHeyMustBeTheMoney]

Hell of a quarter again. This dip won’t last.

[language police]

@bobmelan My guess is dip is just getting started. Too niche, too faddy, too overpriced (merchandise-wise), will soon be post-hip.

[HeyHeyMustBeTheMoney]

@language police everyone has been saying that for the last 5 years and 250 percent

[OverTheHorizon]

That’s as good as it gets w operating margins falling 40 bps (more markdowns to come), 37 pe and hardly blow the doors off guidance:

Meghan Frank on the outlook: "We are proud to have delivered another quarter of strong sales and earnings growth, despite an operating environment that remains dynamic”

Meaning: it’s moving fast out there and it’s impossible to know where we’ll end up.