San Diego, Calif. – Lululemon’s stock surged more than 10% in after-hours trading following the company’s announcement of an increase in its full-year profit outlook and a $1 billion boost to its stock repurchase program.
The company revised its full-year earnings per share forecast to a range of $14.27 to $14.47, up from the previous estimate of $14 to $14.20, while maintaining its revenue forecast between $10.7 billion and $10.8 billion. Despite concerns over slowing sales growth amidst rising competition in the athleisure market from newer brands like Alo and Vuori, Lululemon’s stock had previously fallen by about 40% at the start of 2024, ranking as one of the poorest performers in the S&P 500 for the year.
Analysts believe that the market’s positive reaction is a relief rally, with Aneesha Sherman, senior analyst at Bernstein, emphasizing the significance of the company’s latest report in addressing investor worries. While Lululemon benefited from increased consumer demand for casual wear during the pandemic, recent quarters have seen a slowdown in sales growth, with revenue growth dropping from 19% in the third quarter to 16% in the fourth quarter, and then to 10% in the most recent quarter.
The departure of Lululemon’s chief product officer, Sun Choe, in May led to a 7% decline in the company’s stock, heightening concerns among analysts such as Randal Konik from Jefferies, who suggested that the brand’s product assortment was underperforming. Despite the challenges in the US women’s clothing segment, Lululemon CEO Calvin McDonald remains optimistic about the brand’s growth potential both domestically and internationally.
McDonald acknowledged missed opportunities in the women’s lines due to a limited color palette in leggings but highlighted the positive response to new launches in categories like golf and training among male consumers. Looking ahead, Sherman noted investors’ concerns about flat comparable sales in North America but pointed to international sales as a potential offset.
Konik, however, remains skeptical about the sustainability of earnings growth outside the US, expressing doubts about Lululemon’s ability to maintain margins amidst increasing competition and fading US momentum. The uncertain outlook indicates a challenging path for the brand to navigate in the coming months.