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Why lululemon athletica Stock Dropped 12% in March

By John Ballard – Apr 3, 2020 at 12:59PM

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The temporary store closures will have a big effect on retail sales this quarter.

What happened

Shares of lululemon athletica (LULU -4.28%) lost 12.8% last month, according to data provided by S&P Global Market Intelligence. The stock was moving higher in the first week of March before nose-diving along with the broader market, as the company announced it was temporarily closing all stores in North America and Europe to fight the spread of COVID-19. 

The stock fell to a low of $128.85 on March 18 before bouncing higher as Congress passed a $2 trillion stimulus bill as a safety net under the economy. 

LULU Chart

LULU data by YCharts.

So what

Lululemon entered the year with tremendous momentum. For 2019, revenue increased 21% to reach $4 billion. The digital business was particularly strong, with direct-to-consumer sales growing 41% year over year during the holiday quarter. 

Strong top-line growth and higher margins drove earnings per share up 36% to $4.93 for fiscal 2019. But that growth will dramatically slow in the near term. The priority for management has shifted to protecting and supporting its 19,000 employees during this crisis. 

However, during the recent earnings call, CEO Calvin McDonald said that Lululemon's investment in product innovation will continue. He said, "There are real no changes to 2020 launch plans, or as we look into '21 at this point in time." The company just launched its Everlux fabric in February, the first product launch of the year, and McDonald mentioned it "continues to sell well online." 

A young woman running and wearing athletic apparel.

Image source: Getty Images.

Now what

While Lululemon is not providing guidance for fiscal 2020, management remains focused on achieving the goals set out in its Power of Three road map, which aims to deliver revenue growth through 2023 by investing in product innovation, the digital sales channel, and geographic market expansion. 

John Ballard owns shares of Lululemon Athletica. The Motley Fool owns shares of and recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

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