Lululemon Athletica Inc. experienced a precipitous drop in its stock price in after-hours trading on Thursday. That plunge followed the firm’s release of a full-year financial outlook that fell well short of projections. The athletic apparel retailer said Tuesday that its second-quarter net income jumped 13% to $370.9 million, or earnings of $3.10 per share. That’s a slight drop from last year’s net income of $392.92 million, or $3.15 per share.
Although Lululemon was able to beat second-quarter earnings expectations, its revenue numbers fell short of expectations. Guiding forward, the company anticipates earnings per share in the third quarter of between $2.18–$2.23. This forecast is $0.48 below Wall Street’s consensus estimate of $2.93 per share.
In terms of sales performance, Lululemon’s overall comparable sales rose by only 1%, missing Wall Street’s expectations of a 2.2% increase. On that gross margin front, the company announced a decrease of 1.1 percentage points to 58.5%. In the same time period, the operating margin dropped by 210 basis points, landing at 20.7%.
Lululemon’s same-store sales in the Americas were even worse, down by 4%. The company is preparing for tariffs to take an even bigger bite out of its profits, debuting a $240 million hit to its full-year earnings.
Lululemon had already projected third-quarter revenues in the range of $2.47 billion to $2.50 billion. Compared with that, analysts projected revenues would be just $2.57 billion. The full-year revenue estimate is between $10.85 billion and $11 billion. That’s below Wall Street’s prediction of $11.18 billion.
Calvin McDonald, Lululemon’s CEO, wouldn’t deny the headwinds hitting not only his company, but retail as a whole.
“We are facing yet another shift today within the industry related to tariffs and the cost of doing business.” – Calvin McDonald
McDonald conceded that some of their core product lines were falling flat with customers, saying that
“We have become too predictable within our casual offerings and missed opportunities to create new trends.” – Calvin McDonald
Furthermore, McDonald admitted that certain product lines were not resonating with customers, indicating that
“Our lounge and social product offerings have become stale and have not been resonating with guests.” – Calvin McDonald