Lululemon Athletica (LULU, Financial) shares plummeted today, hitting early November lows after the company forecasted Q1 (Apr) and FY25 (Jan) earnings and sales figures significantly below expectations, despite surpassing Q4 (Jan) financials. For Q1, LULU expects EPS between $2.35-2.40 and revenues between $2.175-2.200 billion, with FY25 EPS forecasted at $14.00-14.20 and revenues at $10.7-10.8 billion. Despite these projections indicating year-over-year growth, largely supported by international markets, a sluggish start in the U.S. due to shifting consumer behaviors and inflation impacts has overshadowed these results.
The fitness apparel industry in the U.S., including LULU, faces challenges as consumers increasingly look for discounts and trade down, a trend highlighted by strong performance at off-price retailers like TJX (TJX, Financial) and Ross Stores (ROST, Financial). In contrast, Adidas AG (ADDYY, Financial) and NIKE (NKE, Financial) have experienced weak apparel demand, with ADDYY struggling with excess inventory and NKE seeing a 1% decline in apparel sales.
Despite U.S. market challenges, LULU remains confident in its growth prospects both domestically and internationally. Key Q4 achievements include:
- A 20% year-over-year improvement in EPS to $5.29 and a 16% increase in revenues to $3.21 billion, with comparable store sales up by +12%.
- Geographically diverse revenue growth, with a +7% increase in the Americas and a +43% surge internationally. Notably, China's revenue grew by 78%, and the Rest of The World saw a 36% increase.
- Significant progress in LULU's Power of Three x2 growth plan, aiming to double 2021 net revenues of $6.25 billion by 2026, with the company already ahead of its 2024 schedule.
While overseas demand trends are promising, they have yet to counterbalance U.S. market weakness. LULU maintains a consistent promotional strategy, avoiding increased markdowns to protect margins but contributing to cautious revenue growth forecasts. Despite near-term challenges, LULU's long-term growth potential, particularly internationally, remains strong.
