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Lululemon’s Stock Nosedives After Falling Short on Quarterly Profits

But strong digital demand, international growth and health and wellness trends leave the company looking to the future.

By Kellie Ell on September 8, 2020 WWD

Lululemon Athletica continues along a steady path to growth amid the pandemic, despite losses earlier this year — but Wall Street wasn’t satisfied. 

The athletic apparel and accessories maker posted quarterly results Tuesday after the bell, growing revenues but falling short on profits, year-over-year. The results beat analysts’ expectations, but they weren’t enough to tame investor fears.

Lululemon’s stock, which closed down 3.21 percent to $349.80 a share Tuesday, continued to trade in the red by more than 7 percent after the market closed as a result.

“We’re pleased with our overall business results for the second quarter, as Lululemon increasingly lives into its omni potential,” Calvin McDonald, chief executive officer, said in a statement. “As trends around the world are shifting to working and sweating from home with an increased focus on health and wellness, we believe 2020 is likely an inflection point for retail and for Lululemon. We are cautiously optimistic with regard to the second half of the year as we continue to navigate the uncertain environment.”

For the three-month period ending Aug. 2, total company revenues increased 2 percent to $902 million, up from $883 million the same time last year. Meanwhile, profits were $86.6 million, down from nearly $125 million a year ago. 

Like most retailers, Lululemon was forced to close all of its stores earlier this year to prevent the spread of the coronavirus. The Vancouver, British Columbia-based company began reopening locations in North America and Europe during the most recent quarter. But net revenues at company-owned stores still fell 51 percent to $287 million during the quarter, year-over-year. The company is not reporting same-store comps with so many stores closed — at least partially — during the quarter. 

As of Aug. 2, 492 of Lululemon’s 506 company-operated stores had reopened. But in-store traffic remains around 75 percent of last year’s levels, because of social distancing needs, McDonald told analysts on Tuesday evening’s conference call. 

Even so, Lululemon still plans to open about 30 brick-and-mortar locations this year. In addition, the retailer will have about 70 seasonal stores for the holidays, up from about 50 last year. 

“We continue to believe stores are and always will be part of our ecosystems,” McDonald said on the call. “Stores are productive and enable so much more than sales. They’re hubs in our community…portals to bring new guests into our brand, particularly men.” 

Meanwhile, e-commerce sales remained a bright spot for the company, surging 155 percent to $554 million, during the same period, year-over-year. China’s digital business grew more than 130 percent during the quarter, year-over-year, while Europe’s e-commerce business was up 160 percent, year-over-year. 

The retailer also offers Instagram workout sessions and held its annual SeaWheeze half marathon virtually this year, allowing people in more than 100 countries to participate in the run without leaving home. 

“Certain behaviors will endure in a post-COVID-19 world,” McDonald said on the call. “Lululemon is uniquely positioned to capture greater market share. One of our strengths is the omni model, whether guests want to engage with us in stores or online.

“The health and wellness trends are here to stay,” he continued. “The world is looking for more of what we have to offer. We’re going to lean in and invest more in the back half of the year.”  

Lululemon is just one of many fitness and activewear brands banking on the at-home fitness trend persisting post-pandemic. The company purchased Mirror, the at-home fitness system, for $500 million in June and now expects Mirror to generate revenues of $150 million for 2020, up from earlier expectations of $100 million. 

“We believe the recent acquisition of Mirror provides Lulu a unique opportunity to further connect with its customers without the limitation of physical locations, further expanding the omni guest experience and digital sweat-life roadmap,” Jen Redding, an analyst at Wedbush, wrote in a note. 

Lululemon ended the second quarter with $1.2 billion in total liquidity, including $523 million in cash and equivalents. The company is not providing forward-looking guidance, but expects high double-digit growth during the fourth quarter. Shares of Lululemon are up nearly 80 percent year-over-year. 

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