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Lululemon Athletica Inc. (LULU) had a rough Thursday evening. After the closing bell, the athletic apparel maker posted its second-quarter results, and the market didn't like what it saw. Shares tumbled 16.40% in after-hours trading, landing at $101.82.
So, what went wrong? Let's break it down.
Lululemon reported second-quarter revenue of $2.42 billion, falling short of the consensus estimate of $2.46 billion. Earnings came in at $2.92 per share, though the company noted that this figure may not be directly comparable to analyst estimates.
The top line took a hit, with total revenue down 4% year-over-year. The Americas were the main drag, with net revenue dropping 8%, while international revenue managed to climb 4%. Comparable sales fell 9% globally.
Inventories were down 1% year-over-year to $1.7 billion. The company ended the quarter with 825 stores, having opened nine new company-operated locations during the period. Cash and cash equivalents stood at approximately $1.4 billion.
Meghan Frank, interim co-CEO and CFO, tried to strike an optimistic tone: "Our teams remain focused on accelerating growth by strengthening our product offerings, increasing our marketing investments, and maintaining disciplined expense management."
But the real story here is the guidance. Lululemon's outlook for the third quarter and the full year came in well below what Wall Street had been expecting.
For Q3, the company projects revenue between $2.29 billion and $2.32 billion, versus the $2.53 billion analysts were looking for. Earnings are expected to be 93 cents to 98 cents per share, a far cry from the $2.43 per share consensus.
For the full year, Lululemon slashed its revenue outlook from a previous range of $11 billion to $11.15 billion down to $10.35 billion to $10.50 billion. Analysts had been modeling $11.04 billion. Earnings guidance was also cut, from $10.95 to $11.15 per share down to $9.48 to $9.73 per share, versus the $10.96 estimate.
Frank acknowledged the headwinds: "While we continue to navigate some challenging dynamics, we are taking a prudent approach with our revised full-year outlook."
Management will discuss the quarter in more detail on an earnings call scheduled for 4:30 p.m. ET. Investors will be listening closely for any signs of how the company plans to turn things around.
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