Lululemon Stock Declines Amidst Sluggish US Store Traffic and Weaker Projections

Lulu Stock

Lululemon Athletica Inc. (NASDAQ:LULU) experienced its most significant drop since the onset of the pandemic following reports of a slowdown in its US operations and a less-than-anticipated outlook for both the first quarter and the full year.

Shares plummeted by as much as 15% in Friday’s New York trading session, marking the sharpest decline since March 2020. Year-to-date, the stock has retreated by 6.3%, contrasting with a 9.9% rise in the S&P 500 Index through Thursday’s close.

Chief Executive Officer Calvin McDonald disclosed to analysts during a conference call on Thursday that visits to US stores dwindled at the start of the year, with consumers purchasing slightly less compared to the previous year. McDonald’s attributed this softness in American consumer behavior as a broad trend entering the year, affecting various product categories rather than specific segments.

Lululemon anticipates revenue for the current fiscal year to range between $10.7 billion and $10.8 billion, reflecting growth of 11% to 12%, notably lower than the 19% growth achieved in the previous year. Moreover, the upper limit of this forecast falls short of analysts’ average expectations.

Morgan Stanley analyst Alex Straton remarked that the company’s lackluster performance in North America, coupled with disappointing sales projections, has bolstered bearish sentiments among investors.

Despite this setback, Lululemon has sustained a remarkable post-pandemic trajectory, consistently delivering robust results with double-digit sales growth, a contrast to the declines witnessed by many US apparel firms. Furthermore, the company is known to offer conservative guidance, often surpassing these projections, fostering anticipation of better-than-expected outcomes among investors.

To enhance its appeal to consumers, Lululemon plans to introduce products in new colors and expand its offerings in smaller sizes, ranging from 0 to 4. Analysts remain optimistic about the company’s prospects, citing anticipated innovations in fabrics and other product enhancements throughout the year.

Bloomberg Intelligence analyst Poonam Goyal expressed confidence in Lululemon’s ability to surpass its conservative forecasts, especially with potential growth opportunities abroad and in the men’s segment. Truist analysts Joseph Civello and Scot Ciccarelli underscored the company’s robust innovation pipeline as a critical driver of growth.

In the fourth quarter, men’s products experienced a 15% growth rate, outpacing women’s apparel at 13%, while accessories surged by 40%. Lululemon plans to open 35 to 40 new stores this year, primarily in China, aiming to capitalize on international markets’ momentum.

With international net revenue soaring by 54% and Americas sales registering a more modest 12% increase, Lululemon projects to achieve net revenue of $12.5 billion by 2026, propelled by strategic initiatives such as bolstering e-commerce, expanding international sales, and promoting men’s apparel.

CEO McDonald emphasized the company’s sustained momentum across all international markets, including Canada, as it enters the first quarter.

Focusing on expanding its footprint in China amidst heightened competition in the US market, Lululemon is also broadening its product range to include accessories, footwear, and men’s apparel, complementing its strong sales performance in women’s activewear.

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