Lululemon cuts annual forecast on warm US demand, growing competition By Reuters

By Savyata Mishra

(Reuters) – Lululemon Athletica (NASDAQ: ) cut its full-year sales and profit forecasts on Thursday, hurt by increased competition and selective spending by North American consumers on its expensive leggings and tank tops.

Its shares, which have lost nearly half their value this year, reversed early losses to rise 2.3 percent after the bell as second-quarter profit beat Wall Street expectations.

The company saw a slow start to 2024 as sales moderated after years of strong growth as persistent inflation led to selective spending by shoppers.

“This was a rare misstep for Lululemon and reflects missteps in product strategy and execution at a time when the stakes are higher due to volatile US consumer spending trends,” said Sky Canaves, an analyst at Emarketer.

Comparable sales rose 2 percent but missed expectations for a 6.05 percent rise, according to LSEG data, driven by a 3 percent drop in sales in the Americas. Comparable sales rose 21% in China.

The company’s sales also suffered as it was forced to pull its newly launched ‘Breezethrough’ leggings from stores and its website within weeks of launching in July because customers complained about the fit, material and seams.

The hiccup comes as Lululemon struggles to grow sales due to lower stock in smaller sizes and colors for women’s clothing.

The forecast cuts also signal tougher holiday sales due to weak growth and competition from Alo, Vuori and Rhone, brands that have grown rapidly in recent years, analysts said.

“Sports spending continues to decline across the board, but we’ve also seen Alo and Vuori continue to gain share over Lulu,” Jefferies analyst Randy Konik said.

The company expects fiscal 2024 net income in the range of $10.38 billion to $10.48 billion, compared with a previous forecast of $10.70 billion to $10.80 billion.

It expects to earn $13.95 to $14.15 per share, compared to its previous forecast of $14.27 to $14.47.

In the second quarter, it earned $3.15 per share, beating LSEG estimates of $2.93.