Lululemon Slips After Holding Off on Full-Year Forecast

Source
A Lululemon store in the Lincoln Park neighborhood of Chicago.
Photographer: Taylor Glascock/Bloomberg

Lululemon Athletica Inc. reported an acceleration of sales growth in the latest quarter, but refrained from offering an outlook for the current year because of the uncertainty caused by the coronavirus outbreak.

  • The Vancouver-based retailer, which has closed many locations amid the health crisis, said the key metric of comparable sales, a gauge of retail success, accelerated to 20% in the quarter that ended Feb. 2. It’s the company’s ninth straight quarter of double-digit same-store sales growth.

Key Insights

  • While it’s expanding overseas, especially in China, Lululemon still relies on North America for about 88% of its revenue, a region where the virus shows no sign of relenting. The company has closed stores in Europe and North America until April 5. An increase of 41% in direct-to-consumer revenue, however, suggests Lululemon’s e-commerce push is paying off and may help the company weather the storm.
  • Results for the quarter, which predate Covid-19 woes in its biggest market, indicate demand was strong. Nonetheless, Chief Executive Officer Calvin McDonald said the outbreak “is currently impacting our business.” Lululemon has sought to boost revenue by adding events and services at some locations.
  • Lululemon said it’s not providing a forecast for its business because of the “the rapid and continuous developments” of the coronavirus outbreak -- the latest sign the pandemic is causing dramatic and rapid change across the retail industry.
  • On a call with analysts, management struck an upbeat tone about the brand’s ability to bounce back when stores reopen and stressed the company’s healthy balance sheet, with more than $1 billion in cash and a $400 million revolving credit facility. Only one store in China remains shuttered.

Market Reaction

  • Lululemon shares fell as much as 3.2% in late trading. The stock, which has 21 buy recommendations, 12 holds and one sell from analysts, has fallen 13% this year through Thursday’s close.
( Updates with comments from earnings call in sixth paragraph)