Lululemon reports tough quarter, slashes outlook
Heidi O’Neill has her work cut out for her as she takes the reins of Lululemon Athletica Inc.
The athleisure retailer reported another tough quarter as its core North American business continues to drag down sales. The company, which has faced increasing competition from newer brands, once again lowered its full-year year, and reduced its store opening plans to about 35 net new locations from 40. It also is cutting back on pop-ups, with plans to open about 40 compared to 65 last year.
On the earnings call, interim co-CEO and CFO Meghan Frank said that "negative commentary" in the media and social channels impacted traffic. She also noted that demand softened more than anticipated in several key product areas, including its iconic leggings, where sales fell about 20%.
“While we are seeing good guest reaction to our activations and some of our newer styles, the overall response to our product launches remains inconsistent, and we’ve continued to see pressure on the brand in both of our largest markets,” Frank said on the company’s earnings call.
Going forward, Lululemon is focusing on introducing new styles to return to sales growth.
“Our management team leaders and employees are focused on serving our guests and executing initiatives to drive an inflection in our business,” she said.
The next chapter of Lululemon will be led by new leader O’Neil. In April, the company appointed the 27-year Nike Inc. veteran as its next CEO, effective Sept. 8.
Sky Canaves, principal analyst at EMarketer, said that as O'Neill finally takes the helm at Lululemon, she is “leading a company that is in a worse position than when she accepted the job.”
“Sales declines have accelerated in the North America market, and international momentum has fizzled out, so overseas markets can no longer be counted on to offset some of the weakness in its core markets,” Canaves said in e-mailed comments to Chain Store Age. “Lululemon is being crowded out by nimbler challenger brands that are more appealing to the Gen Z tastemakers who drive brand desirability."
Second Quarter
Lululemon reported net income of $329.2 million, or $2.92 per share, for the quarter ended Aug.2, compared to $370.9 million, or $3.10 per share, in the year-ago period. Adjusted earnings of $2.06 topped analyst expectations of $1.79. (The results were boosted by tariff refunds and related interest.)
Second-quarter net revenue decreased 4% to $2.4 billion. Net revenue in the Americas region decreased 8%. International net revenue increased 4%.
Comparable sales fell 9%, and were down 12% in the Americas. International comps 3%.
For the full year, Lululemon now expects sales will fall between 5% and 7% to between $10.4 billion and $10.5 billion, compared to its earlier estimate of between $11 billion and $11.2 billion. Earnings per share are now expected to be in the range of $9.48 to $9.73. down from its earlier forecast of $10.95 to $11.15.
The company opened nine net new company-operated stores during the quarter, ending with 825 stores.
