Lululemon faced challenges in its fiscal second quarter, leading to its first revenue miss in over two years and a downward revision of its full-year guidance. The company now anticipates full-year net revenue between $10.38 billion and $10.48 billion, lower than the previous estimate of $10.7 billion to $10.8 billion. Expected earnings per share have also been revised to a range of $13.95 to $14.15, down from $14.27 to $14.47.
In the second quarter, Lululemon reported earnings per share of $3.15, surpassing analyst expectations of $2.93. However, revenue came in at $2.37 billion, below the anticipated $2.41 billion. The company’s net income for the quarter was $393 million, an increase from $342 million a year earlier, while sales grew by 7% year-over-year to $2.37 billion. Despite this growth, the company’s comparable sales only increased by 2%, significantly below the 5.9% analysts had projected, with a 3% decline in the Americas.
The current quarter outlook appears similarly challenging, with Lululemon forecasting sales growth of 6% to 7%, underperforming analysts’ expectations of 9.2%. Nonetheless, the company’s profit guidance for the third quarter is roughly in line with Wall Street estimates, expecting earnings per share between $2.68 and $2.73.
A significant factor in Lululemon’s recent struggles was the poorly received launch of its Breezethrough leggings in early July. Following a wave of customer complaints regarding the product’s fit, Lululemon pulled the item from its stores. CEO Calvin McDonald described the launch as a learning opportunity, emphasizing that while the fabric was well-received, the design did not meet customer expectations. He assured that this decision had minimal impact on the quarter’s financial performance.
The challenges extend beyond the Breezethrough leggings. Lululemon faced issues with its product assortment, including insufficient color and size options, which contributed to a slowdown in its core women’s business in the U.S. McDonald acknowledged that a lack of new styles has hindered sales, particularly in the bottoms category and online.
Despite these hurdles, Lululemon’s international sales saw a 29% jump, with China emerging as a key growth market. The company also reported a 9% increase in gross profit to $1.4 billion, with a gross margin of 59.6%, exceeding analyst expectations.
Following the departure of longtime chief product officer Sun Choe in May, Lululemon implemented a new organizational structure aimed at balancing product design and merchandising. McDonald expressed confidence in the new leadership, with Jonathan Cheung overseeing product innovation and Nikki Neuburger taking on the role of chief brand and product activation officer.
As demand softens, Lululemon is focusing on operations and efficiency to navigate the challenging retail landscape. Despite the sales slowdown, the company’s robust profit margins and international expansion offer some optimism for the future.
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