Quick Summary
- Q1 revenue reached $2.47bn, reflecting 4% growth and surpassing the $2.43bn forecast, though earnings per share plummeted to $1.69 from $2.60 last year
- Comparable sales in the Americas declined 5%, while international markets grew 13%, with Mainland China surging 30%
- Annual revenue forecast reduced to $11bn–$11.15bn, significantly below Wall Street’s $11.47bn projection
- Second quarter EPS outlook of $1.76–$1.81 fell dramatically short of analyst expectations of $2.69
- Incoming CEO Heidi O’Neill won’t assume leadership until September, delaying any potential strategic turnaround
Lululemon Athletica (LULU) shares were already suffering, down 40% for the year before Thursday’s first-quarter earnings announcement. The athleisure brand added to investor pain with an additional 11% decline in extended trading after slashing its annual outlook, despite achieving first-quarter revenue targets.
Lululemon Athletica Inc., LULU
First-quarter net revenue totaled $2.47bn, marking a 4% year-over-year increase and exceeding the analyst consensus of $2.43bn. Unfortunately, the positive momentum ended there.
Net profit plunged to $195m from $314.5m during the same quarter last year. Earnings per share on a diluted basis fell to $1.69 from $2.60, marginally surpassing the $1.67 projection. Operating profit declined 37% to $276.9m, while operating margin contracted by 730 basis points to 11.2%.
Gross profit margin compressed by 410 basis points to 54.2%. Management attributed 280 basis points of the decline to tariff headwinds, while the remainder stemmed from fixed cost pressures resulting from softer demand across North America.
Regional performance painted contrasting pictures. Revenue in the Americas dropped 3%, with comparable store sales declining 5%. Conversely, international revenue soared 22%, propelled by exceptional performance in Mainland China, where revenue climbed 30% and comparable sales increased 20%.
Outlook Falls Significantly Short of Expectations
The revised guidance represented the most significant disappointment for shareholders. For the second quarter, Lululemon projects revenue of $2.45bn–$2.47bn, representing a sequential decline of 2%–3% from Q1 and substantially below the $2.59bn Wall Street anticipated. The Q2 earnings per share forecast of $1.76–$1.81 pales in comparison to analyst estimates of $2.69.
The company’s full-year revenue projection was trimmed to $11bn–$11.15bn, essentially flat to slightly negative growth, compared to the consensus estimate of $11.47bn. Annual EPS guidance now stands at $10.95–$11.15, versus prior expectations of $12.28. Management clarified that guidance excludes potential refunds related to IEEPA tariffs.
During the quarter, the retailer bought back 2.2 million shares totaling $358.3m and concluded the period with 816 stores globally, a net addition of five locations.
CEO Transition Remains Several Months Out
The leadership situation continues to create uncertainty. Following the departure of former CEO Calvin McDonald, the organization is currently operating under interim co-CEOs while awaiting Heidi O’Neill’s arrival in September. O’Neill previously held executive positions at Nike.
Interim co-CEO Meghan Frank highlighted several successful new product introductions throughout the quarter while conceding certain initiatives fell short. She emphasized the brand would adopt a “bolder” approach in the second half of the fiscal year.
O’Neill’s initial appointment announcement failed to generate investor enthusiasm, suggesting she faces considerable challenges when she officially assumes the role.
At present trading levels, LULU stock carries a forward price-to-earnings ratio of approximately 10 times based on the revised annual forecast. The stock’s 52-week trading range spans $116.63–$275.60, with shares recently changing hands near $125.
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