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Lululemon Shares Tumble as 4th Quarter Earnings Fall Shor

Canada’s Lululemon Athletica Inc. missed 4th quarter analyst expectations which led to its shares tumbling down by 18.2% to $54.25. According to Thomson Reuters, Wall Street’s consensus forecast for its earnings per share was 39 cents per share. However, the company only expects to make between 25 and 27 cents per share for the 1st quarter of 2017.

Lululemon’s earnings expectation for the fiscal year is in the range of $2.26 and $2.36 per share, and these estimations are below what Wall Street expects.

CEO Laurent Potdevin said, “We’ve clearly identified the issues: an assortment lacking depth and color for spring. We should have been bolder with the color assortment. Our teams have been course-correcting issues, with early indications reflecting positive impact on performance. We will see more color in selected styles as early as next week.”

4th quarter adjusted earnings per share increased to $1 and was below the consensus estimate of $1.01 per share. 4th quarter sales for Lululemon, however, beat Wall Street’s estimates.

The company boosted revenues by 12% to $790 million, and this was above the estimate of Wall Street which was $783.6 million. Its gross margin also beat expectations as it enjoyed a more efficient supply chain.

Executives added that the disappointing performance was due to poor online sales and fewer shoppers in brick and mortar retail stores.

As a result of the weak 4th quarter performance, the company expects that 1st quarter sales will also be poor. Another reason for the weak performance has been the stronger than expected Canadian dollar. The impact was noted to be 2 cents higher than it estimated.

Lululemon was the leader in “athleisure wear” market. It made yoga wear into mainstream fashion. Its success in this niche prompted competitors such as Nike Inc., Gap Inc., and Under Armour Inc., to join the lucrative market.

Potdevin said its focus this year would be to expand in China. On a related note, the men’s line of Lululemon is expected to grow rapidly and become a $1 billion-plus operation by 2020.

Despite the slow start to 2017, Lululemon executives expect full-year earnings to be between $2.55 billion and $2.6 billion. Earnings per share are expected to range between $2.26 and $2.36 a share.

Prices for Lululemon yoga pants are around $98, $52 for its energy bras and $48 for its T-shirts. One analyst noted that one worrying trend is that Lululemon’s loyal customers are purchasing less yoga pants.

Potdevin said, “Although we 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.”

Potdevin remains positive that Lululemon will reach its sales to $4 billion by 2020.

Neil Saunders, managing director of GlobalData Retail, said, “Lululemon is now coming up against tougher comparatives which will make growth more challenging. Moreover, it will have to contend with the saturation of a slowing athleisure market.”

Categorized as: Business

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