Lululemon shares fall as retailer gives tepid holiday outlook despite strong start to shopping season

Lululemon on Thursday said it saw strong third-quarter demand and a positive start to the holiday shopping season, but the retailer’s shares fell in extended trading after it gave a tepid fourth-quarter outlook.

Here’s how the company did in its third fiscal quarter, compared with what Wall Street was expecting, based on a survey of analysts by LSEG, formerly known as Refinitiv.

• Earnings per share: $2.53 adjusted vs. $2.28 expected
• Revenue: $2.20 billion vs. $2.19 billion expected

The company’s reported net income for the three-month period that ended Oct. 29 was $249 million, or $1.96 per share, compared with $255 million, or $2 per share, a year earlier. Excluding one time items, Lululemon reported earnings of $2.53 per share.

Sales rose to $2.2 billion, up about 19% from $1.86 billion a year earlier.

During the quarter, sales jumped 12% in North America and 49% internationally, but the retailer’s holiday guidance came in light of expectations. Lululemon said it’s expecting sales to be between $3.14 billion and $3.17 billion for the fourth quarter, which is shy of the $3.18 billion analysts had expected, according to LSEG.

Lululemon expects earnings to be between $4.85 and $4.93 per share, compared to estimates of $4.80 to $5.19, according to LSEG. For the full year, Lululemon expects sales to be between $9.55 billion and $9.58 billion, compared to estimates of between $8.11 billion and $9.90 billion, according to LSEG.

“We’re pleased with the trends we’ve seen at the start of the holiday season. That being said, the majority of the quarter remains in front of us,” finance chief Meghan Frank said on a call with analysts. “We remain aware of the uncertainties in the macro environment, and we continue to plan a business for multiple scenarios.”

Shares fell about 3% in extended trading.

On a call with analysts, CEO Calvin McDonald said Black Friday this year was the “single biggest day” in the company’s history. He added that Lululemon is “encouraged” by the trends it has seen at the start of the holiday season.

“As we enter the holiday season, we are pleased with our early performance and are well-positioned to deliver for our guests in the fourth quarter,” McDonald said in a news release. “I am energized by the significant opportunities ahead.”

During Lululemon’s third quarter, total comparable sales were up 13%, higher than the 12.4% jump analysts had expected, according to StreetAccount. Comparable sales at the retailer’s stores came in at 9%, lower than the 11.7% Wall Street expected.

But comparable direct-to-consumer sales spiked 18%, higher than the 16.9% analysts had expected, according to StreetAccount.

Lululemon incurred $72.1 million in impairment charges related to Mirror, the connected fitness company it acquired for $500 million during the Covid-19 pandemic that it’s now winding down. Those costs add to the $443 million in impairment charges the company reported earlier this year for the equipment.

As part of a new partnership with former rival Peloton, Lululemon will no longer sell the Mirror device or produce content for its Studio app. Instead, Peloton will provide all the content for Lululemon’s app and in turn, the retailer will become Peloton’s primary athletic apparel partner.

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