Lululemon Warns of Margin Pressures Amid High Costs and Slowing Spending

Lululemon Athletica

Lululemon Athletica is seeing lower margins but higher revenue and earnings.

The athletic apparel, footwear and accessories company has raised its revenue and earnings expectations for the quarter that ends Jan. 29, the firm said in a Monday (Jan. 9) press release.

It now expects net revenue of $2.660 billion to $2.700 billion and diluted earnings per share of $4.22 to $4.27 for the fourth quarter of fiscal 2022. Those figures are up from the previous guidance of $2.605 billion to $2.655 billion and $4.20 to $4.30, respectively, according to the press release.

“We are pleased with our continued revenue growth and momentum in the business, as our teams navigate a dynamic macro-backdrop,” Lululemon Athletica CEO Calvin McDonald said in the release. “In Q4, traffic remains strong across both physical and digital channels, and we anticipate delivering another quarter of solid earnings growth consistent with our updated EPS forecast.”

At the same time, the company expects its gross margin to decline while its selling, general and administrative expenses increase. It had previously expected its margin to increase, according to the press release.

The company has been coping with high inflation that has raised costs and lowered consumer spending, Reuters reported Monday.

Competitor Athleta, a Gap brand, reported Nov. 17 in its most recent earnings release that its net sales were up 6% and its comparable sales were flat as it continued to experience softness in demand.

Lululemon’s stock was down about 11.5% early Monday morning.

The company announced during its most recent earnings call that it had launched a membership program that includes both free and paid tiers and offers early access to products and other perks.

McDonald also reported progress in the company’s Power of Three x2 growth plan, which calls for doubling its 2021 net revenue by 2026 through product innovation, guest experience and market expansion, including doubling men’s, doubling direct to consumer (D2C) and quadrupling international net revenue, according to an earlier press release.

“2022 has been a strong year for Lululemon, and we remain focused on the significant opportunities ahead as we continue to deliver on our Power of Three x2 growth plan,” McDonald said in the Monday press release.

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