Macroeconomic conditions are poor, and the performance guidance is below expectations. Lululemon plummets 11% after hours | Earnings report insights
The company stated that the uncertainty of the macro economy has led consumers to reduce offline shopping, and the company is facing concerns about U.S. consumer spending, as well as rising supply chain costs amid the trade war between U.S. President Trump and multiple countries around the world. According to the financial report, Lululemon's comparable sales in the Americas for the fourth quarter remained flat, but comparable sales in international markets surged by 20%. Among them, China has become a key growth engine for Lululemon, with the company's revenue in the Chinese market growing by 39% year-on-year in the fourth quarter
Lululemon announced its financial report after the market closed on Thursday, showing that although the company's performance in the fourth quarter of fiscal year 2024 exceeded analysts' expectations, its outlook for the next year was disappointing amid a slowdown in sales in the United States, leading to an 11% drop in the company's stock price after hours.
Key Financial Data:
Revenue: Lululemon's revenue for the fourth quarter was $3.61 billion, a year-on-year increase of 13%, exceeding analysts' expectations of $3.57 billion.
Net Profit: Lululemon's net profit for the fourth quarter was $748 million, compared to $669 million in the same period last year.
Earnings Per Share: Lululemon's earnings per share for the fourth quarter were $6.14, higher than analysts' expectations of $5.85.
Full-Year Revenue for Fiscal Year 2024: Lululemon's full-year revenue for fiscal year 2024 was $10.59 billion, up from $9.62 billion in 2023. Excluding the extra week in fiscal year 2024, the company's revenue for the fourth quarter and the full year both grew by 8% year-on-year.
Performance Guidance:
Revenue for the First Quarter of Fiscal Year 2025: Lululemon expects first-quarter revenue to be between $2.34 billion and $2.36 billion, below analysts' expectations of $2.39 billion.
Earnings Per Share for the First Quarter: Lululemon's expected earnings per share for the first quarter are between $2.53 and $2.58, lower than analysts' expectations of $2.72.
Full-Year Revenue for Fiscal Year 2025: Lululemon expects full-year revenue for fiscal year 2025 to be between $11.15 billion and $11.30 billion, below analysts' expectations of $11.31 billion.
Full-Year Earnings Per Share: Lululemon expects full-year earnings per share for fiscal year 2025 to be between $14.95 and $15.15, lower than analysts' expectations of $15.31.
Lululemon's stock rose 1.11% on Thursday, closing at $341.53. Due to the disappointing performance guidance, the company's stock price initially dropped over 11% after hours, later narrowing to around 9%.
Severe Macroeconomic Situation and Rising Supply Chain Costs
Lululemon's Chief Financial Officer Meghan Frank stated during the earnings call on Thursday that the gross margin for fiscal year 2025 is expected to decline by 0.6 percentage points due to rising fixed costs, foreign exchange rate fluctuations, and tariffs imposed by the U.S. on China and Mexico.
She mentioned that the company will continue to focus on driving growth in the current fiscal year while flexibly responding to ongoing macroeconomic uncertainties.
According to the financial report, Lululemon's comparable sales (i.e., sales adjusted for store openings and closures) grew by 3% year-on-year, below analysts' previous expectations of 5.4%. Lululemon had 767 stores at the end of the quarter, with a net addition of 18 directly operated stores during the period Currently, Lululemon CEO Calvin McDonald is boosting market demand by expanding product categories and entering new areas, such as launching sportswear for golf, tennis, and running. However, the company has been grappling with changing fashion trends, striving to adapt to consumers who prefer loose styles over the brand's iconic tight-fitting apparel.
McDonald stated during the earnings call that macroeconomic uncertainty has led consumers to reduce in-store shopping, and the company is facing concerns about U.S. consumer spending, as well as rising supply chain costs amid the trade war between U.S. President Trump and multiple countries worldwide. According to regulatory filings submitted by the company, most products are sourced from Asia, including Vietnam, Cambodia, and Sri Lanka.
McDonald mentioned in a conference call with analysts:
"We are in a macro environment full of variables, leading to a cautious consumer attitude, and foot traffic across the industry has been significantly impacted."
North American Market Performance Mediocre, International Sales Flourishing
Three years ago, McDonald set a long-term strategic plan aiming to double sales to $12.5 billion by 2026. The company still maintains this goal, but increasing competition has slowed its growth rate, particularly in the North American market.
According to the earnings report, Lululemon's comparable sales in the Americas remained flat in the fourth quarter. In Thursday's earnings call, Calvin McDonald stated that a survey conducted earlier this month revealed that consumer spending has decreased due to economic and inflationary issues, leading to a decline in foot traffic for Lululemon and its peers in the U.S. However, he also noted that consumers have responded well to the innovative products launched by the company.
Despite facing sales slowdown issues in the U.S. market, McDonald indicated that the U.S. business has stabilized in the second half of the year, attributing part of the improvement to the introduction of new categories.
In contrast, Lululemon's comparable sales in international markets surged by 20% in the fourth quarter. China has become a key growth engine for Lululemon, with revenue in the Chinese market increasing by 39% year-on-year in the fourth quarter. According to Morgan Stanley data, Lululemon became the third-largest foreign sportswear brand in the Chinese market last year.
McDonald added that Lululemon will expand its stores this year to Italy, Denmark, Belgium, Turkey, and the Czech Republic