Lululemon Struggles on Deteriorating Outlook


We issued an updated research report on Lululemon Athletica Inc. (LULU) after the company’s first-quarter fiscal 2014 results.

Though the company’s first-quarter fiscal 2014 results were stronger-than-anticipated, it came up with a disappointing forecast for the second quarter and slashed its fiscal 2014 guidance as it focuses on transitioning from the demerits of last year’s product recall as well as expanding its international presence.

For fiscal 2014, Lululemon slashed its revenue range to $1.77–$1.80 billion from $1.77–$1.82 billion projected earlier. Comparable-store sales (comps) are now expected to grow in the low-single digit range as against the previously anticipated low to mid-single digit range. Moreover, Lululemon lowered its adjusted earnings guidance range to $1.71–$1.76 per share for the fiscal from $1.80–$1.90 per share projected earlier.

For the second quarter, the company anticipates earnings in the 28–30 cents per share range which is much lower than the year-ago comparable quarter’s earnings of 39 cents per share.

The company’s soft guidance triggered a downtrend in the Zacks Consensus Estimate, as analysts became less constructive on the stock’s future performance. The Zacks Consensus Estimate fell 17.1% to 29 cents per share for second-quarter fiscal 2014, 7.4% to $1.74 for fiscal 2014 and 9.5% to $2.01 for fiscal 2015 in the past 30 days.

Lululemon has been in troubled waters since Mar 2013 when the company was forced to recall its Black Luon yoga pants and crops from its stores and e-Commerce site due to quality related issues. This created a lot of buzz in the press, which coupled with controversial comments from Lululemon’s founder that hurt the sentiments of its women customers, led to lower traffic trends in the company’s stores throughout fiscal 2013, thus, impacting the company’s overall results.

Apart from these headwinds, the company is struggling to save its market share from competitors foraying into the activewear product line. Currently, Lululemon carries a Zacks Rank #5 (Strong Sell).

Key Picks from the Sector

Better-ranked stocks worth considering in the apparel/shoe space include Christopher & Banks Corp. (CBK), Citi Trends Inc. (CTRN) and The Men’s Wearhouse Inc. (MW). All of these stocks carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on LULU
Read the Full Research Report on CBK
Read the Full Research Report on CTRN
Read the Full Research Report on MW

Zacks Investment Research

View Comments (1)