Lululemon shares drop after weak outlook

Shares of Lululemon Athletica Inc. fell sharply in after-hours trading Wednesday after the athletic-inspired sportswear company delivered a weak outlook for the current quarter.

Company says profit, revenue were higher in most recent quarter

Lululemon Athletica disappointed the market Wednesday as it projected current-quarter revenues will come in below the expectations of analysts. (Darryl Dyck/Canadian Press)

Lululemon Athletica Inc.'s stock plunged Wednesday by nearly 20 per cent in after-hours trading as it warned of a sluggish start to retail sales this year and set out its 2017 guidance.

The company renowned for its yoga wear said it returned to positive operating income growth last year for the first time since 2013, but store traffic has so far dropped this year.

"Although we've had a slow start to 2017, our teams are passionately committed to delivering on our robust plans across product innovation, digital, North America and international as we realize our ambitious vision for the future," said CEO Laurent Potdevin in a statement.

For the first quarter, the company expects net revenue to come in at a range of between $510 million US and $515 million US, with diluted earnings per share in the range of $0.25 and $0.27, as it expects a low single digit sales decrease.

For the full year ahead, the company is forecasting net revenue of about $2.6 billion US, for diluted earnings per share of between $2.26 and $2.36.

Mixed outlook

Neil Saunders, managing director of GlobalData Retail, said Lululemon had a strong showing last year but he sees a mixed outlook in the year ahead as competition in the athletic wear industry heats up.

"Lululemon is now coming up against tougher comparatives which will make growth more challenging," said Saunders in a research note. "Moreover, it will have to contend with the saturation of a slowing athleisure market."

Markets reacted to the news negatively, sending the share price down $12.05 US or about 18.2 per cent to $54.25 US on the Nasdaq in after-hours trading.

Revenue and net income for the quarter ending Jan. 29 were slightly off analyst estimates compiled by Thomson Reuters.

Lululemon reported net income for the quarter of $136.1 million US, down from a consensus of $138.7 million US. Revenue was $789.9 million US compared with estimates of $783.6 million US.

Net income in the fourth quarter was up from $117.4 million US, or about 16 per cent, in the same quarter a year earlier as total comparable sales ticked up eight per cent, the company said.