Lululemon cuts guidance, misses sales estimates after botched product launch

Lululemon lowered its guidance and posted its first revenue miss in more than two years on Thursday after it botched a highly anticipated product launch and growth slowed in the Americas. 

The company now expects full-year net revenue to be between $10.38 and $10.48 billion, down from a previous range of between $10.7 billion and $10.8 billion. Lululemon anticipates earnings per share will be in a range of $13.95 to $14.15, down from previous guidance of $14.27 to $14.47.

Here’s how company did in its fiscal second quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

• Earnings per share: $3.15 vs. $2.93 expected
• Revenue: $2.37 billion vs. $2.41 billion expected

Shares rose more than 2% in extended trading after initially falling.

The company’s reported net income for the three-month period that ended July 28 was $393 million, or $3.15 per share, compared with $342 million, or $2.68 per share, a year earlier. 

Sales rose to $2.37 billion, up about 7% from $2.21 billion a year earlier. Beyond total sales, Lululemon also missed expectations on comparable sales, which grew 2%, well behind estimates of 5.9%, according to StreetAccount. Comparable sales in the Americas fell 3%.

The trend doesn’t appear poised to improve in the current quarter. Lululemon said it expects sales to grow 6% to 7%, worse than the 9.2% growth that analysts had expected, according to LSEG.

However, Lululemon’s profit guidance is roughly in line with what Wall Street anticipated. The company said it expects third-quarter earnings per share to be between $2.68 and $2.73, compared to estimates of $2.70, according to LSEG.

During the quarter, Lululemon pulled its Breezethrough leggings, launched in early July, after it received a wave of complaints about the product’s unflattering fit. The botched launch came after the company struggled with a number of other self-inflicted issues with its assortment, including not having the right colors and sizes that its core customers desired.

The flops have contributed to a slowdown in the company’s largest market, the Americas. During the quarter, sales grew only 1% in the region. Sales jumped 29% in Lululemon’s international markets as the company looks to China for growth.

“In the U.S., our teams continue to optimize our product assortment and remain focused on driving forward our opportunities in the market,” CEO Calvin McDonald said in a news release. “Looking ahead, we feel confident in the long runway in front of us.”

Like other retailers that are seeing demand slow, Lululemon appears focused on what’s within its control: operations and efficiency. While the sales picture during the quarter was rougher than expected, Lululemon’s profits came in higher than anticipated.

Gross profit grew 9% to $1.4 billion, while its gross margin grew 0.8 percentage points to 59.6% — better than the 57.7% that analysts had expected, according to StreetAccount. Its operating margin and operating income also increased.