What Happened?
Shares of athletic apparel retailer Lululemon (NASDAQ: LULU) fell 18.4% in the morning session after the company cut its full-year revenue and profit guidance, signaling a weaker outlook ahead.
The company lowered its annual revenue forecast to $10.93 billion at the midpoint and its earnings per share guidance to $12.87 at the midpoint, which missed analyst expectations. This disappointing forecast overshadowed its second-quarter results, where the company actually beat profit estimates with an EPS of $3.10.
However, other signs of slowing momentum were evident. Revenue for the quarter grew 6.5% to $2.53 billion, narrowly missing expectations. More concerningly, same-store sales growth decelerated sharply to just 1% year-on-year, a significant drop from its historical performance. The company's operating margin also compressed, falling to 20.7% from 22.8% in the same period last year, indicating reduced profitability.
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What Is The Market Telling Us
Lululemon’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. But moves this big are rare even for Lululemon and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 3 days ago when the stock dropped 1.6% on the news that Jefferies lowered its price target on the stock, adding to investor concerns about the athletic apparel maker's growth prospects.
The investment firm reduced its price target to $150 from $160 while maintaining its "Underperform" rating. This bearish view comes amid broader worries about the company's performance, particularly a slowdown in U.S. traffic, which is a significant risk given the U.S. market represents three-quarters of Lululemon's revenue.
Lululemon is down 54.8% since the beginning of the year, and at $168.38 per share, it is trading 60% below its 52-week high of $421.16 from January 2025. Investors who bought $1,000 worth of Lululemon’s shares 5 years ago would now be looking at an investment worth $481.37.
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