Lululemon Shares Fall After Outlining Weaker Guidance for Holiday Season in Q4

Lululemon shares fell on Thursday afternoon, despite reporting results for Q3 that topped estimates.

Shares of the Vancouver, British Columbia-based athleisure brand were down as much as 9% after hours after the company outlined a weak outlook for its fourth quarter. Lululemon now projects Q4 net revenue to be between $2.605 billion and $2.655 billion, and Q4 diluted earnings per share are expected to be between $4.20 and $4.30 for the quarter.

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The lower-than-expected outlook for the holiday season comes as consumers across the board feel the impact of inflation on their wallet. While Lululemon typically caters to higher-income shoppers that have been less impacted overall by inflationary pressures, the company is still operating in a “challenging” external environment, Lululemon CEO Calvin McDonald said.

Lululemon reported that Q3 net revenues were up 28% to $1.9 billion. In North America, revenues increased 26%. Diluted earnings per share were $2.

McDonald attributed the brand’s strong third-quarter results to its “innovative products, deep community relationships and the hard work and dedication of our talented teams around the world.” In Q3, Lululemon rolled out another shoe in its new footwear collection. Lululemon entered footwear in March and was recently named Launch of the Year at the 36th annual FN Achievement Awards.

Despite the weaker Q4 outlook, Lululemon raised its guidance for fiscal year 2022 and now expects net revenue in the range of $7.944 billion to $7.994 billion, which would represent a three-year compound annual growth rate of about 26%. Diluted earnings per share are expected to fall between $9.94 to $10.04, and adjusted diluted earnings per share are expected to be in the range of $9.87 to $9.97.

“We are proud to have delivered another quarter of strong sales and earnings growth, despite an operating environment that remains dynamic,” said Lululemon CFO Meghan Frank in a statement. “These results illustrate the strength and differentiation of our omni operating model and position us well to deliver ongoing value for our stakeholders. We look forward to a strong finish to our fiscal year.”

McDonald said Lululemon is still on track to hit its Power of Three ×2 growth goals, which involves doubling business from 2021’s net revenue of $6.25 billion to $12.5 billion by 2026. Lululemon announced this five-year plan, which hinges on doubling its men’s and DTC business and quadrupling its international net revenue compared to 2021, in April.

In line with these goals, Lululemon has introduced new products such as footwear, improved the guest experience and expanded into new markets.

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