Lululemon shares plunge on warning of ‘slow start’ to 2017
Shares of Lululemon Athletica Inc. plunged in early-morning trading Thursday after the retailer warned of a “slow start” to 2017, while reporting fourth-quarter earnings that missed analyst expectations.
Shares of the Vancouver-based athletic wear retailer were down 22.5 per cent shortly after the opening bell in New York. They fell more than 20 per cent in aftermarket trading Wednesday after the results were released.
“Although we’ve had a slow start to 2017, our teams are passionately committed to delivering on our robust plans across product innovation, digital, North America and international as we realize our ambitious vision for the future,” said CEO Laurent Potdevin in a statement Wednesday.
Lululemon said its revenue jumped 12 per cent in the fourth quarter, which included a robust holiday selling season. Potdevin said during a conference call with analysts that the slowdown most acutely affected e-commerce.
“We have clearly identified the issues: An assortment lacking depth in colour for spring, compounded with visual merchandising that did not powerfully translate our design vision,” the CEO said.
“We will see more colour in selected styles as early as next week,” he said, adding Lululemon is also launching a new mobile app, adding more products to its online assortment and improving its online merchandising.
Lululemon has been under pressure amid industry concern that “athleisure,” the trend it helped spawn, has peaked. Rivals Nike and Under Armour are also under pressure after mixed earnings reports.
Canadian sales of athleisure have grown by an average of seven per cent per year since 2010 to an estimated $4-billion market in 2016, up from $2.7 billion six years ago, according to market research firm NPD Group. But the market has become more diluted and growth has slowed with the entry of mass retailers into the field, such as Walmart, Old Navy, H&M and Joe Fresh.
Lululemon, has also faced analyst criticism for favouring grassroots marketing over mass advertising, but Potdevin announced that the retailer will launch its first global brand campaign early in the second quarter.
The company is aiming to boost sales in 2017 by introducing more innovative clothing styles and expanding its mens’ business as it takes a more cautious view of store traffic and performance, given the broad upward trajectory in consumer online shopping.
For the period ended Jan. 29, Lululemon reported higher earnings, but missed average analyst estimates by a penny, with profit rising to 99 cents US per share, or $136.1 million US, compared with earnings of 85 cents US ($117.4 million US) for the same time in 2015. Adjusted earnings were $1 US. Analysts were anticipating earnings of $1.01 US and revenue of $783.56 million US in the fourth quarter, according to Thomson Reuters.
For the fiscal 2016, revenue rose 14 per cent to $2.3 billion US from $2.1 billion US in fiscal 2015.
Potdevin said Lululemon is sticking to its goal of reaching $4 billion US in sales by 2020, more than double its earnings and deriving 20 per cent to 25 per cent of overall sales from outside the U.S.
In 2017, the company’s key international growth target is China, Potdevin said. Lululemon is opening up to 50 stores next year, including about 15 locations outside of North America.
Fourth-quarter revenue on a constant dollar basis climbed to $789.9 million US at the company’s 406 stores from $704.3 million US in 2015, while online revenue also climbed 12 per cent in the period to $164.3 million US.
Same-store sales, an important measure of retail performance at outlets open for more than a year, rose six per cent at Lululemon’s stores on a constant dollar basis and seven per cent including direct to consumer sales.
Gross profit as a percentage of net revenue rose to 54.2 per cent compared with 50.3 per cent a year ago.
The company ’s outlook is anticipating revenue of $510 million US to $515 million US in the first quarter of 2017 and earnings per share of 25 cents US to 27 cents US.