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Lululemon Posts Mixed Financial Results And Lowers Guidance

Canada’s Lululemon Athletica (LULU) has reported mixed second-quarter financial results and lowered its forward guidance as the company’s North American growth continues to slow.

The Vancouver-based company announced earnings per share (EPS) of $3.15 U.S., which topped consensus forecasts of $2.93 U.S.

However, revenue of $2.37 billion U.S. fell short of Wall Street’s expectations for sales of $2.41 billion U.S. It was Lululemon’s first revenue miss in more than two years.

Beyond total sales, Lululemon also missed analyst expectations on comparable sales, which grew 2%, well below the 6% that was estimated.

Comparable sales in the U.S. and Canada fell 3% during the quarter.

Executives at Lululemon attributed the results to a difficult launch of new Breezethrough leggings that were initially launched in July but quickly pulled from stores following customer complaints about the product’s fit.

On the earnings call with media and analysts, management said that the Breezethrough launch was an opportunity for the company to “test and learn.”

In recent months, Lululemon has also struggled with not having enough products in stores, and not having colours and sizes that customers want.

As a result, overall sales in the U.S., Lululemon’s biggest market, grew only 1% in the Americas during Q2 of this year.

However, international sales continue to be a bright spot for the company. In Q2, sales grew 29% in Lululemon’s international markets, which include China.

Helped by overseas sales, Lululemon’s gross profit grew 9% to $1.40 billion U.S., while its gross margin increased 0.8 percentage points to 59.6%. That was better than the 57.7% gross margin that analysts had expected.

Looking ahead, Lululemon said that it expects full-year revenue of $10.38 billion U.S. to $10.48 billion U.S. The new guidance is down from a previous estimate of $10.70 billion U.S. to $10.80 billion U.S.

Lululemon said it anticipates earnings in a range of $13.95 U.S. to $14.15 U.S. for all of this year, down from previous guidance of $14.27 U.S. to $14.47 U.S.

The stock of Lululemon has declined nearly 50% year to date to trade at $259.01 U.S. per share, making it one of the worst performing securities in the benchmark S&P 500 index.