Key Takeaways
- First-quarter revenue reached $2.47bn, representing 4% growth and surpassing the $2.43bn forecast, though EPS plummeted to $1.69 from $2.60 in the prior year
- North American comparable store sales declined 5%, while international comparables climbed 13%, including a 30% surge in Mainland China
- Annual revenue forecast reduced to $11bn–$11.15bn, significantly trailing the $11.47bn Street expectation
- Second-quarter EPS outlook of $1.76–$1.81 fell dramatically short of the $2.69 analyst projection
- Incoming CEO Heidi O’Neill won’t assume control until September, delaying any potential strategic turnaround
Shares of Lululemon Athletica (LULU) had already suffered a brutal 40% decline year-to-date before releasing its first-quarter results. The pain intensified Thursday evening when the stock plunged an additional 11% in extended trading following the athleisure giant’s announcement of significantly reduced full-year projections, despite achieving quarterly revenue targets.
Lululemon Athletica Inc., LULU
The company reported first-quarter net revenue of $2.47bn, marking a 4% year-over-year increase and exceeding the consensus forecast of $2.43bn. Unfortunately, the positive momentum ended there.
Net income experienced a steep decline to $195m compared to $314.5m during the same period last year. Diluted earnings per share collapsed to $1.69 from $2.60, narrowly surpassing the $1.67 estimate. Operating income tumbled 37% to $276.9m, while operating margin contracted by 730 basis points to reach 11.2%.
Gross 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 pressure related to softening demand across North America.
Geographic performance painted a tale of two markets. Revenue from the Americas segment contracted 3%, with comparable sales dropping 5%. Conversely, international revenue surged 22%, propelled by exceptional performance in Mainland China, where revenue increased 30% and comparable sales advanced 20%.
Projections Miss the Mark Significantly
The updated outlook proved most damaging to investor sentiment. For the second quarter, Lululemon provided revenue guidance of $2.45bn–$2.47bn, representing a 2%–3% sequential decline from Q1 and substantially below the $2.59bn Wall Street anticipated. The Q2 EPS forecast of $1.76–$1.81 paled in comparison to analyst expectations of $2.69.
Full-year revenue projections were trimmed to $11bn–$11.15bn, essentially flat to slightly negative growth, versus the $11.47bn consensus target. Annual EPS guidance landed at $10.95–$11.15, compared to Street estimates of $12.28. Management clarified that guidance excludes potential tariff refunds under IEEPA.
During the quarter, the company bought back 2.2 million shares totaling $358.3m and concluded the period with 816 stores operating globally, representing a net addition of five locations.
Executive Transition Remains in Limbo
The leadership situation continues to add uncertainty. Following the departure of former CEO Calvin McDonald, the organization is currently managed by interim co-CEOs pending Heidi O’Neill’s arrival in September, when the former Nike executive officially takes the helm.
Interim co-CEO Meghan Frank highlighted several successful product launches throughout the quarter while conceding certain initiatives fell short. She promised the company would demonstrate “bolder” actions during the year’s second half.
O’Neill’s selection failed to generate investor enthusiasm upon announcement, suggesting she faces an uphill battle to restore confidence once she assumes leadership.
Based on revised annual projections, LULU currently trades at approximately 10 times forward earnings. The stock’s 52-week trading range spans $116.63–$275.60, with shares last changing hands near $125.
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