Lululemon Athletica's net earnings for the quarter ended Jan. 29, 2017 went up by 15.9 percent to $136.1 million, but they fell below analysts' expectations, weighed down by currency effects due to a stronger-than-expected Canadian dollar. In the biggest one-day drop in eight years, the Canadian company's shares tumbled by 23.4 percent to $51.01 at its close yesterday after the release of the weaker-than-expected earnings and a weak outlook for the first quarter of the new financial year.
Admitting that it had a “slow start” to the new financial year, the group's management said in a conference call with analysts that it expected comparable sales to fall in the first quarter due to a disappointing product assortment - “lacking depth and color for spring” – and poor visual merchandising on its website, all of which has resulted in weaker online sales and fewer shoppers in its stores. It would be the first quarterly decline for the vertically integrated company since 2009.
It added that its teams have been course-correcting issues, with early indications reflecting a positive impact on the company's performance thanks to more color in selected styles. Revenues are expected to decline in the first quarter, but Lululemon's guidance for the full year remains upbeat, with revenues expected to range between $2,550 million and $2,600 million, compared with the level of $2,344.4 million reached in the past year.
Many analysts are apparently seeing signs that leggings and other types of yoga apparel are falling out of fashion and have reduced their expectations for the company over concerns that women are losing interest in the athleisure category, which the retailer helped popularize over the past decade, according to a report from Reuters.
An observer noted that Nike and Under Armour also lost ground on the stock exchange yesterday as some analysts may be feeling that the athleisure category in general may have stopped growing as fast as before, at least in the apparel sector. Euromonitor has predicted that the category will see a rise of only 5.2 percent this year, down from an average growth of 6.9 percent in the past five years, and the major sports brands are now being increasingly challenged by the fashion sector, where even brands like Missoni have launched their own athleisurewear. The growing popularity of stretch denim is also seen as a negative factor for sports brands.
Anyhow, the 13-week quarter ended Jan. 29 had many positive elements. Sales rose by 12.0 percent from the year-ago quarter to $789.9 million. Total comparable store sales, including the company's offline and online business, advanced by 8.0 percent, or by 7.0 percent on a constant-dollar basis. At $164.3 million, e-commerce took a similar slice of the total turnover as a year ago. The gross margin jumped by 3.9 percentage points to 54.2 percent, while the operating margin rose by 1.3 percentage points to 24.9 percent.
For the full fiscal year, the sales level of $2,344.4 million represented growth of 14.0 percent over the prior year, while total comparable store sales gained 6.0 percent, or 7.0 percent in constant currencies. The gross margin increased by 2.8 percentage points to 51.2 percent. The company also saw its net income advance by 14.1 percent to $303.4 million.
Lululemon continued its expansion internationally, especially in China, where it reinforced its presence in Shanghai and Beijing. In December, it opened its first three stores in the country. In Europe, the company opened its international flagship store in Regent Street, in London this past January. In the last quarter alone, Lululemon opened 17 new stores – nine in North America, four in Asia, two in Oceania and one in Europe.
Meanwhile, in North America, Lululemon continued to optimize and grow its store portfolio through a combination of standard store, expanded co-located stores and locations that are uniquely tailored to their market and community. Overall, the company ended the quarter with 406 stores, up from 363 stores in January 2016.
Looking forward, Lululemon plans to launch its first global campaign in the second quarter and to open 28 new stores in the course of this year – 15 of them overseas – and to expand 12 locations. The company said that its Chinese expansion would be a key focus this year, with digital retailing playing a key role on top of an already strong business on TMall. Also, the brand's new men's line is on track to become a $1 billion-plus business by 2020.