Lululemon's stock surged approximately 4% after the company raised its full-year profit outlook and expanded its stock repurchase program by $1 billion. This significant market reaction followed the company's forecast that now sees full-year earnings per share ranging from $14.27 to $14.47, compared to a prior range of $14 to $14.20. However, it maintained its full-year revenue forecast at $10.7 billion to $10.8 billion.
Despite the optimistic outlook, investor concerns linger due to the company's decelerating sales growth amidst intensifying competition from brands like Alo and Vuori. Earlier this year, Lululemon’s stock had plummeted about 40%, marking it one of the worst performers in the S&P 500 index for 2024.
During the pandemic, Lululemon experienced a notable surge in consumer demand for casual wear. However, this momentum has waned in recent quarters. For example, in Q4, revenue growth slowed to 16% from the previous year, down from 19% in Q3. In the latest quarter, the growth further decelerated to 10% year-over-year.
The company faced a notable setback in May when its Chief Product Officer, Sun Choe, departed, sending the stock tumbling by 7%. Analysts, such as Jefferies’ Randal Konik, argue that the product lineup has been underperforming, particularly in North America where comparable sales were stagnant in the first quarter. Despite surpassing Wall Street’s estimates in revenues ($2.21 billion) and earnings per share ($2.54), concerns over the company's growth trajectory persist.
CEO Calvin McDonald acknowledged that performance issues, particularly in women’s clothing lines in the US, contributed to the slowdown. The limited color palette in leggings was identified as a misstep. However, McDonald indicated that men's clothing lines, particularly in categories like golf and training, have shown promising performance. He asserted the company’s growth potential remains robust, not only in the US but internationally, with ongoing efforts to address the identified issues.
Analysts remain divided on Lululemon's ability to sustain growth. Konik opined that as US sales slow and market share is lost to competitors like Alo and Vuori, maintaining profit margins will become increasingly challenging. Nevertheless, the company’s international performance this quarter offered a silver lining, potentially mitigating North America's stagnation.
Future research and strategic development at Lululemon will likely focus on diversifying product offerings and enhancing market appeal. The broader implications of Lululemon’s strategy and market performance extend beyond the company itself, affecting stakeholders from policymakers to industry professionals and general consumers who drive demand in the ever-evolving athleisure market. The upcoming quarters will be critical in determining whether Lululemon can regain its footing amid a fiercely competitive landscape.
