Key Takeaways
- Q1 revenue reached $2.47bn, a 4% increase that topped the $2.43bn estimate, though EPS plunged to $1.69 from $2.60 year-over-year
- Comparable sales in the Americas region declined 5%, contrasting with 13% international growth and 30% surge in Mainland China
- Annual revenue forecast reduced to $11bn–$11.15bn range, significantly trailing the $11.47bn Wall Street consensus
- Second quarter EPS outlook of $1.76–$1.81 dramatically undershot analyst projections of $2.69
- Incoming CEO Heidi O’Neill won’t assume leadership until September, delaying potential turnaround initiatives
Shares of Lululemon Athletica (LULU) stock, which had already tumbled 40% for the year, plunged an additional 11% during after-hours trading Thursday following the athletic apparel retailer’s decision to lower its annual forecast despite achieving first-quarter revenue targets.
Lululemon Athletica Inc., LULU
First-quarter net revenue totaled $2.47bn, representing a 4% year-over-year increase and surpassing the $2.43bn analyst consensus. However, the positive momentum ended there.
Net earnings plummeted to $195m compared to $314.5m in the same quarter last year. Diluted earnings per share fell to $1.69 from $2.60, narrowly exceeding the $1.67 projection. Operating income declined 37% to $276.9m, while operating margin compressed by 730 basis points to 11.2%.
Gross margin contracted 410 basis points to 54.2%. The athletic wear company attributed 280 basis points of the decline to tariff effects, with the remainder stemming from fixed cost pressures related to softer North American demand.
Regional performance painted a tale of two markets. Americas revenue decreased 3%, with comparable store sales dropping 5%. Meanwhile, international revenue soared 22%, propelled by Mainland China, where revenue climbed 30% and comparable sales increased 20%.
Forward Outlook Disappoints Investors
The updated guidance delivered the biggest setback for shareholders. For the second quarter, Lululemon projects revenue between $2.45bn and $2.47bn, representing a 2%–3% sequential decline and falling substantially short of Wall Street’s $2.59bn expectation. The company’s Q2 EPS forecast of $1.76–$1.81 contrasted sharply with analyst estimates of $2.69.
Annual revenue projections were reduced to a range of $11bn–$11.15bn, essentially flat or slightly lower, compared to the consensus estimate of $11.47bn. Full-year EPS guidance now stands at $10.95–$11.15, versus analyst expectations of $12.28. Management noted the guidance excludes potential IEEPA tariff refunds.
During the quarter, the company bought back 2.2 million shares for $358.3m and concluded the period with 816 stores globally, reflecting a net addition of five locations.
Executive Transition Remains in Flux
The company’s leadership situation continues to evolve. Previous CEO Calvin McDonald departed, and the organization is currently operating under interim co-CEOs until Heidi O’Neill, a Nike veteran, assumes the top role in September.
Interim co-CEO Meghan Frank highlighted successful new product introductions during the quarter while acknowledging certain shortcomings. She indicated the company plans to take “bolder” actions in the latter half of the year.
O’Neill’s selection failed to generate investor enthusiasm at the time of announcement, suggesting she faces challenges in restoring shareholder confidence upon her arrival.
At present valuations, LULU stock trades at approximately 10 times forward earnings based on the revised annual guidance. The stock’s 52-week trading range spans $116.63–$275.60, with shares recently changing hands near $125.
