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Lululemon Tumbles After Lowering Profitability Forecast

Lululemon Athletica Inc. shares tumbled after the company warned that financial results will come at the low end of previous guidance, saying the Omicron coronavirus variant was constraining its operations.
Lululemon Athletica Inc. shares tumbled. (Shutterstock)

Lululemon Athletica Inc. shares tumbled after the maker of fitness wear lowered its guidance for gross margin, stoking fears about profitability for a second-straight quarter.

Gross margin is now expected to shrink by as much as 1.1 percentage point in the three-month period ending in late January, compared with a previous forecast for an increase of as much as 0.2 percentage point, the Vancouver-based company said in a statement on Monday. Lululemon shares fell as much as 12 percent as of 9:45 a.m. in New York.

The company, best known for its yoga gear, also saw its shares tumble a month ago when it reported lower-than-expected profitability in the third quarter. Across the retail sector, companies have struggled to manage inventory levels, which can lead to steep markdowns. Lululemon is no exception, and its shrinking gross margins are “troubling” amid an inventory pileup, according to Tom Nikic, an analyst at Wedbush Securities.

“We think investors might put this one in the ‘penalty box’ for a while, particularly since we won’t hear from them again for a while (they are usually one of the last companies to full-report Q4 results, in late March),” Nikic wrote in a note to clients.

Many retailers have been giving preliminary looks at their holiday-season results ahead of this week’s ICR Conference in Orlando, Florida. Lululemon said in its statement that its management will meet with analysts and investors at the event.

Lululemon raised its fourth-quarter revenue outlook and said customer traffic remains strong both in stores and online. The company aims to double sales by early 2027 with more stores, international expansion and growth in the men’s business.

Neil Saunders, managing director at GlobalData Plc, said the company is in a strong position. The retailer is taking steps to reduce costs, which makes margin pressure “more of a blip than a worrying trend,” he said.

Lululemon now expects earnings per share in the fourth quarter will be in the range of $4.22 to $4.27, below the average analyst estimate of $4.30. The previous guidance was for EPS of $4.20 to $4.30.

By Frank Connelly and Tonya Garcia

Learn more:

Lululemon Aims to Double Sales by 2026

Lululemon Athletica Inc. outlined a five-year plan intended to double sales to $12.5 billion by 2026, in part by expanding its offerings to men.

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