Lululemon Athletica's fourth-quarter earnings were higher than anticipated, but the stock was falling Thursday after management's financial guidance for the year fell short of expectations.
The activewear company reported earnings of $6.14 a share for the quarter ended Feb. 2. Analysts expected $5.85 a share, according to FactSet.
Revenue rose 13% to $3.6 billion, in line with projections for $3.58 billion.
Still, the shares were 10% lower at $307.74 in the after-hours trading session. The company issued updated guidance for the holiday quarter in January, so investors focused on management's forecasts for fiscal 2025, which were less upbeat than expected.
For the full year ending next January, Lululemon expects net revenue to range from $11.15 billion to $11.3 billion, representing growth of 5% to 7%. Analysts had been projecting a revenue increase of 7% to $11.3 billion.
Earnings per share will be between $14.95 to $15.15, the company said. The range's midpoint, $15.05, is well below the $15.37 Wall Street had penciled in for the year. The guidance includes a 0.2 percentage point impact from tariffs on Chinese and Mexican imports, executives said. Unfavorable foreign exchange rates will also weigh on profitability.
Guidance for the first quarter disappointed as well. The ranges for first-quarter revenue and earnings per share are $2.335 billion to $2.355 billion, and $2.53 to $2.58, respectively. Estimates called for $2.39 billion in revenue and $2.72 in earnings per share.
The company has seen softer sales growth for the better part of a year, which management at one point attributed to a slowdown in innovation and new product launches. Executives now sound more upbeat about their merchandise, but they are still wary about how a slowdown in consumer spending could affect demand.
"We started this year with several compelling new product launches, but we also believe the dynamic macro environment has contributed to a more cautious consumer," said CEO Calvin McDonald on a call with analysts Thursday.
Skeptics on the stock had expected downbeat guidance, saying ahead of the report that Lululemon's sales, like those of other retailers, probably slowed in January and February.
Randal Konik, who is a longtime pessimist, pointed out that both the retailer's web and foot traffic was below that of other activewear companies. According to foot traffic monitor Placer.ai, Lululemon store visits rose 3.6% year over year in January and fell 7.7% in February; Alo Yoga's jumped 42% and 12%, respectively, both of those months.
"LULU's North American market (70% of the business) continues to slow and impacts LULU's growth opportunity, which is further pressured by increasing competition," he wrote in a note on Monday.
Concerns about competition have plagued the stock for months now, as new players such as Alo and Vuori eat up market share. Lululemon also might have to worry about Nike's new partnership with Kim Kardashians' Skims brand, which aims to win over female athletes.
Lululemon's fourth quarter does suggest that demand in North America is struggling. Same-store sales in the Americas were flat compared with a year ago in the fourth quarter, and decreased 1% for the year. Sales growth in the U.S. will remain soft throughout the current year. North America sales will grow in the low-single digit to mid-single digit range, with the U.S. on the lower end of that scale, said Meghan Frank, Lululemon's chief financial officer.
"We did come into the quarter and saw a decline in traffic -- macro traffic -- that's impacting us as well," Frank said.
Lululemon stock was down 11% this year as of Thursday's close, while the S&P 500 was off 3.2%. The shares trade at 21.7 times the per-share earnings expected for the next 12 months, well below the five-year average of 36.7 times.
