Lululemon Shares Slide on Warning

Athletic-wear firm says gross margin may contract by 110 basis points

By
Nathan Reiff
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Nathan Reiff has been writing expert articles and news about financial topics such as investing and trading, cryptocurrency, ETFs, and alternative investments on Investopedia since 2016.
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Published January 09, 2023
Carved wooden sign on facade of Lululemon yoga and exercise clothing retailer at Broadway Plaza in downtown Walnut Creek, California.

Getty Images / Gado

Lululemon Athletica Inc. (LULU) shares lost almost a tenth of their value after the company said gross margins narrowed by as much as 110 basis points in the fourth quarter instead of widening as it had predicted.

Key Takeaways

  • Lululemon shares fell on Monday morning after the company announced it expects a contraction in fourth quarter gross margin of up to 110 basis points.
  • The company had previously predicted growth margin would widen up to 20 basis points.
  • Lululemon narrowed its earnings forecast to $4.22 to $4.27 per share and increased its quarterly revenue guidance to as much as $2.7 billion.
  • The athletic apparel firm has reported rapid sales growth and has a five-year strategy to double revenue by 2026.

The athletic apparel company previously expected an increase of 10 to 20 basis points, and the company also said it will leverage selling, general and administrative expenses by as much as 1.2%, up from a predicted 0.3%-0.5%.

The firm lowered its earnings forecast for the quarter to between $4.22 and $4.27 per share from a previous forecast of $4.20 to $4.30 a share. Lululemon also boosted its quarterly revenue target to as high as $2.7 billion, up from a prior top-end estimate of $2.66 billion. At that level, revenue would increase by more than a quarter year-over-year.

In a news release, Lululemon CEO Calvin McDonald said customer traffic in both physical and digital channels remained strong in the last quarter, helping to drive earnings and revenue growth.

Lululemon announced in April 2022 a plan to double sales to $12.5 billion by 2026. The growth strategy includes expansions into new categories including footwear as well as increased focus on men's products and digital offerings.

Article Sources
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  1. Lululemon Athletica Inc. "lululemon athletica inc. Updates Revenue and Earnings Expectations for the Fourth Quarter Ahead of the ICR Conference."

  2. Yahoo! Finance. "Lululemon Athletica Inc. (LULU)."

  3. Wall Street Journal. "Lululemon Spins Further Out of Yoga Orbit."

  4. Businesswire. "lululemon Announces Five-Year Growth Plan to Double Revenue by 2026 to $12.5 Billion."

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