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Lululemon holiday quarter profit forecast hit by new product investment

By
Reuters
Published
today Dec 12, 2019
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Lululemon Athletica Inc forecast holiday quarter profit largely below analysts’ expectations on Wednesday, as the athleisure pioneer invests heavily to launch new products to fend off intensifying competition.


The company’s net income rose 33.4% to about $126 million, as lower manufacturing costs helped beef up the company’s margins, while net revenue jumped 22.5% to $916.1 million - Lululemon


The company’s shares fell a little over 4% in extended trading. They have nearly doubled in value this year as a big push into menswear and online helped the company beat revenue estimates for the first three quarters of the year.

Chief Financial Officer Patrick Guido said on a post-earnings conference call the company would have to invest in developing new sports bras and accessories to keep up with investors’ growth expectations.

Known for its $100 yoga pants, Lululemon has dominated the market for pricey, fashion forward athleisure, but this year has faced competition from cheaper yet similar products from companies such Sweden’s H&M.

Also this year, Nike Inc, the world’s largest sportswear maker, launched its own line of yoga wear as part of its focus on womenswear.

Lululemon said it expects to earn between $2.10 and $2.13 per share in the fourth quarter, while analysts on average had expected $2.13.

The company also said it would invest to expand its loyalty program, improve its in-store shopping experience and develop new menswear, a business that it aims to double by 2023.

Jane Hali & Associates analyst Jessica Ramirez said the weaker-than-expected forecast created a slight panic among investors, but it was likely conservative.

“You don’t want to bore the customer with what you have,” she said. “They need to keep up the excitement around their products.”

For the third quarter ended Nov. 3, total comparable sales rose 17% on a constant currency basis, easily beating estimates for a rise of 14.39%, according to IBES data from Refinitiv.

Lululemon said it expects comparable sales to rise in the low double digits in the fourth quarter.

The company’s net income rose 33.4% to about $126 million, as lower manufacturing costs helped beef up the company’s margins, while net revenue jumped 22.5% to $916.1 million.

The company earned 96 cents per share, while analysts had expected 93 cents.

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