Lululemon admitted on Wednesday that it’s had a “slow start” to the year, which dragged down its outlook and sent its stock plunging.
Shares, which have climbed 8% in the last twelve months, lost 21% in Thursday trading. Several analysts rushed to slap downgrades on the stock. Billionaire founder Chip Wilson, who is no longer involved in running the company but remains its largest individual shareholder, saw $275 million knocked off his fortune according to Forbes‘ real-time rankings.
The yoga retailer warned that sales growth would slow this year and it forecast revenue and profits that were significantly lower than what Wall Street analysts had in mind. Management noted both fewer visitors in stores and less people making it through the check-out process online.
“We’ve clearly identified the issues: an assortment lacking depth and color for spring,” said CEO Laurent Potdevin on a call with analysts and investors. “Our teams have been course-correcting issues, with early indications reflecting positive impact on performance.”
The Vancouver-based retailer has faced intense competition from retailers, including giants like Nike and Under Armour, which have come out with their own lines of athleisure clothing. Lululemon has been expanding its product selection and men’s and children’s lines while keeping its prices at a premium.
Lululemon “is proving not immune from environment as neutral color palette that worked in [the second half of 2016] isn’t resonating this Spring,” noted Oppenheimer analyst Anna Andreeva in a note to clients. “The consumer wants more fashion/newness.”
For the current quarter, the retailer expects earnings of 25 to 27 cents per share on revenue of $510 million to $515 million. Total comparable sales are projected to decrease in the low-single digits on a constant currency basis. Analysts had been looking for earnings of 39 cents on revenue of $552 million.
While Lululemon tried to strike an optimistic tone despite a “slow start” to the year, it still didn’t exactly inspire confidence with its 2017 outlook. The retailer is calling for full-year earnings in the range of $2.26 to $2.36 per share on revenue of $2.55 billion to $2.6 billion. That is also below consensus estimates of $2.57 in earnings on $2.62 billion in revenue. The retailer is assuming total comparable sales rise in the low-single digits on a constant currency basis, compared to 7% growth in 2016.
“Slowing sales and moderating [gross margins] puts bull thesis on the mat,” wrote Wells Fargo analyst Ike Boruchow.
Lululemon also reported mixed fourth quarter earnings on Wednesday. Net income rose to $136 million, or 99 cents per share, from $117 million, or 85 cents per share, a year earlier. Excluding certain items, earnings came in at $1, missing analyst estimates of $1.01 per share. Read More