Lululemon Q2 sales disappoint amid product woes, slowing growth in Americas
Lululemon Athletica inc. lowered its full-year guidance and posted its first sales miss in more than two years as the company was challenged by product missteps and slowing growth at home.
The company’s product missteps during the quarter included its new Breezethrough leggings line, which it pulled from its shelves and website shortly after launch following widely-publicized negative reviews and customer complaints about the fit. On the earnings call, CEO Calvin McDonald said the decision to pull the line had a “negligible impact” on the company’s second-quarter performance.
Earlier this year, Lululemon said it missed out on some sales because it did not stock as many different colors of leggings as customers wanted. McDonald addressed the product issues on the call, saying the company has struggled with “newness,” or seasonal updates to its patterns, colors, prints and silhouettes. He called the lack of new styles the “most significant factor” affecting U.S. sales.
“It’s become clear to us that this reduced newness, which is below our historical levels and stems from earlier product decisions, has impacted conversion rates, given the fewer new options available to our female guests,” McDonald told analysts.
During the quarter, Lululemon’s longtime chief product officer, Sun Choe, resigned to pursue another opportunity. (She was subsequently global brand president of Vans.) With Choe’s departure, the company tapped Jonathan Cheung, global creative director, to drive the product design while continuing to oversee design, innovation and product development.
[READ MORE: Lululemon making ‘organizational changes’ as chief product officer exits]
In addition, the company is facing increased competition from newer premium athleisure brands such as Beyond Yoga, Alo and Vuori.
Lululemon reported net income of $392.9 million, or earnings per share of $3.15, for the quarter ended July 28, compared with $341.6 million, or $2.68 a share, in the year-ago period. Analysts had expected earnings per share of $2.93.
Revenue rose 7% to $2.37 billion, missing estimates of $2.41 billion, as growth slowed in the Americas, its biggest market. Net revenue in the Americas increased 1%, or 2%, while international net revenue soared 29%.
Same-store sales rose 2%. Americas comparable sales decreased 3%. International comps increased 19%.
Lululemon now expects full year revenue to be between $10.38 billion and $10.48 billion, down from its previous guidance of $10.7 billion to $10.8 billion. Earnings per share are expected to be in the range of $13.95 to $14.15, down from its previous guidance of $14.27 and $14.47.
At the end of the quarter, Lululemon operated 721 stores.
