Lululemon’s revenue forecast has been revised downward for the entire fiscal year after it missed Wall Street expectations in its second fiscal quarter.
It attributed its disappointing results to an unsuccessful product launch, and the slowdown of growth in the Americas – the company’s largest market.
Athletic apparel giant expects net revenues to fall between $10.38 and $10.48 Billion, down from the previous estimate of $10.7 to $10.8 Billion.
The earnings per share are expected to fall between $14.27 and $14.47, down from earlier expectations of $14.27-$14.47.
Shares of the company dropped by as much as 10 percent in trading after the announcement.
Lululemon’s Q2 earnings fall short of expectations
Lululemon’s net profit for the period of three months ending on July 28 was $393 millions, or $3.15 a share. The net income for the three-month period ending July 28 was $393 million or $3.15 per share.
LSEG (formerly Refinitiv) conducted a survey among analysts and found that despite this growth, Wall Street had expected the company to earn $2.41billion.
Lululemon’s overall sales increased by 7% compared to the $2.21 Billion reported for the same period last year. However, comparable sales grew at a much slower rate.
StreetAccount data shows that comparable sales grew by just 2% – well below analysts’ expectations of a 5.9% increase.
The company has a shortfall in sales due to missteps with their product line, such as the lack of availability of colors and sizes popular among its customers.
Regional slowdown and botched product launches
The Breezethrough Leggings were launched in July at a time when they had a difficult launch.
After a flurry of complaints from customers about its poor fit, the product was removed shortly after it hit shelves.
The company’s performance across the Americas was significantly affected by this launch failure. It also had to contend with challenges earlier in terms of ensuring the correct product mix.
Sales in the Americas, Lululemon’s biggest market, increased by only 1%, as opposed to previous double-digit increases.
The brand is concerned about its ability to hold its position in its own market as the competition in activewear increases.
The international markets are a bright spot
Lululemon’s international markets — particularly China — provided some comfort as the Americas struggled.
This company has reported an impressive 29% growth in its sales outside the Americas. Its global expansion strategy is clearly paying off.
Lululemon is increasingly dependent on growth in China, and in other international areas to counter the difficulties it faces in North America and the US.
Lululemon will continue to focus on growing its international presence while also addressing issues which have affected its performance in North America.
In order to meet its new financial goals for this year, the company will need to be able to gain momentum on its main market and launch successful products.
Near-term prospects are questioned
Lululemon’s performance in the fiscal second quarter has led to questions regarding its growth prospects for near term, especially its biggest market, Americas.
The decision of the company to reduce its revenue and earning guidance for full year reflects challenges that it is facing in order to navigate a highly competitive retail environment.
Lululemon’s success in expanding internationally will be determined by its ability to correct the mistakes that led to the recent setbacks, and capitalize on opportunities available in new markets such as China.
The post Lululemon fails to meet Q2 sales targets, stocks fall 10% could be updated as new information unfolds.
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