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What Lies Ahead for Lululemon Athletica Inc. After Its Earnings Stumble?

By Motley Fool Staff - Apr 5, 2017 at 3:58PM

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The unfortunate end of an upbeat and long-running streak for the premium retailer.

In this segment from Motley Fool Money, Chris Hill recruits Simon Erickson to give investors some context following the 25% decline Lululemon Athletica (LULU 2.46%) shares have suffered since releasing fiscal 2016 results. Weak guidance has scared off Wall Street, and the company will need to prove that it can branch out successfully from its core market.

A full transcript follows the video.

This video was recorded on March 31, 2017.

Chris Hill: Shares of Lululemon Athletica fell 23% on Thursday after a bad fourth quarter report and guidance, Simon, that was dramatically lower than what Wall Street analysts were expecting.

Simon Erickson: Chris this is what happens when Rhoda Pitcher leaves the company, right?

Hill: Tell me about it.

Erickson: The executives of the company are saying they're predicting the first same-store sales decline in the past 28 quarters. So, obviously, that's what the Street was reacting to, when forward-looking guidance is that bad. A lot of this is because they really botched a lot of their online sales channel, the visual merchandising they were trying for the new depth of color in spring. Didn't work out. They're course correcting. They say, "Don't worry about it, we have it under control." I'll give them a quarter to figure that out, but it is something that we need to see improved. I think bigger picture for Lululemon is, this is a company that's really carved out a very profitable niche in yoga, and they've done it very well. They have great margins off of that. Now, the company needs to learn how to expand their product categories. We've seen them grow very well with men's, they have the ABC line of pants and various other items -- 20% growth in men's year-over-year. We see the ivivva line for teenagers, that was up 28% year-over-year. And now you have international expansion, too. They're trying out some new stores in China. But I think you have to see calculated growth from Lululemon, because it's not just a niche retailer of yoga pants anymore. It has to become a larger entity, and that's what the Street wants to see.

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