When I originally sat down to write about Lululemon (LULU +2.18%), I intended to write in contrast to the negativity surrounding its latest earnings results. On second glance, I'm changing my tune. Lululemon is slowing down, and forecasts indicate a further continuation of that trend.
Coupled with the downbeat results and guidance from other companies, such as Dick's Sporting Goods and Nike, I think it might be time to finally be a little more cautious about an athleisure brand that charges pretty big prices for its products.
Results and forecast
To be fair, Lululemon's still provided some good figures in its most recent quarter. The company produced earnings growth of 17.5% on a per-share basis year over year, bringing in $3.15 per diluted share. It's the slower overall forecast that causes concern, with less drive for the share price to appreciate.
Looking ahead, net 2024 revenue is now anticipated to be $10.38 billion to $10.48 billion. Going off the liberal side of that range, it would represent an 8.9% increase over last year's $9.62 billion, and would be the slowest top-line growth in the last five years for the company.
Diluted earnings per share are anticipated to be in the range of $13.95 to $14.95. Again, on the liberal end of this guidance, it would give Lululemon full-year earnings growth of 22.5%. This pales in comparison to last year's 82% increase.
Don't get me wrong. I'm not saying 22.5% is bad. It's just not as exciting as what we've seen, and the slower top-line expectations lead one to wonder if Lululemon can regain its previous earnings growth.
NASDAQ: LULU
Key Data Points
Leggings and competition
One of the disappointments facing Lululemon right now is a failed leggings launch. Its "Breezethrough" leggings were pulled this summer after consumers were displeased with sizing and fit. This coincides with one of the problems for Lululemon that has been cited by different analysts: a slower rollout of new ideas and products. When you factor in that the company lost its chief product officer, Sun Choe, early in the year, it makes sense.
If the company can't create new innovations to drive consumers to new products, it makes sense that things might slow down a bit. Especially in a more timid consumer environment.
Let's face it. This is a crowded space. Nike, Adidas, and even troubled Under Armour are all competitors to varying degree; and their results haven't been the most inspiring either. Nike, for instance, has warned of sales declines in its current quarter. Under Armour said that sales are "falling across its business."
Lululemon is competing against these names, not to mention rivals like Puma, Vuori, Alo Yoga, Columbia Sportswear's Prana, Gap's Athleta, and Fabletics. No matter how you swing it, it's a crowded space where high-priced items might not receive the love that they used to.
Results of retail and the implications
Looking ahead, I anticipate stagnation for shares. They are down 50% year to date, and there's not a lot here indicating that we're going to see a big catalyst changing that narrative. Lululemon has to increase top-line growth, and forecasts aren't indicating that will happen. Couple that with the uncertainty facing consumers heading into the fall, and I'm just not sure this is the right time for Lululemon.
At the end of the day, this is still a good company. We're just entering a period of uncertainty and less-exciting growth prospects. Multiple companies have indicated views of a weaker and/or more fiscally conservative consumer. That doesn't necessarily bode well for a business selling expensive athleisure products.
