Financial Performance

Lululemon Shares Fall on Steep Sales Drop

Investors had been hoping the athletic wear retailer would benefit as consumers focus on health and wellness amid the coronavirus pandemic.
Matthew HellerJune 12, 2020

Lululemon shares dipped on Friday after the athletic wear retailer reported that quarterly sales fell 17% despite a surge in online business.

According to Barron’s, investors’ hopes were high going into the first-quarter earnings report, with “plenty of analysts … touting the company’s ability to benefit from the [coronavirus] pandemic, as consumers focus on health and wellness (and indulge in wearing yoga pants while working remotely).”

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“Although at least one analyst upbeat about the stock warned sales could come in light, some have said it will be a long-term retail winner, and could soon be a $50 billion company,” Barron’s noted.

But Lululemon’s first-quarter sales declined to $651.9 million from $782.3 million, reflecting losses from its stores being temporarily shut due to the pandemic, even though e-commerce sales surged 68% to $352 million.

The company’s earnings fell to 22 cents per share from 74 cents per share as distribution center costs increased due to the surge in online demand. Gross margin fell to 51.3% of net revenue, compared with 53.9% a year ago.

In trading Friday, Lululemon, which had climbed 33% year to date through Thursday’s close, tumbled 5.5% to $291.02. Investors’ expectations appear “to have set the bar too high for the company to clear,” Barron’s said.

Lululemon did not report same-store sales, a key retail metric, for the quarter ended May 3 because of the temporary store closures. As of June 10, 295 of its 489 stores globally have reopened for business and it expects almost 100% of stores to be open again by the end of this month.

CEO Calvin McDonald said online sales surged 125% during the month of April alone, with that trend continuing into the second quarter. “There’s no doubt, coming out, that our online business I believe will find a new norm that’s higher than where we began,” he told analysts.

He also said that as more people stocked up on workout gear and comfortable clothing during the pandemic, Lululemon saw one of its largest market share gains ever during the quarter, with women’s bottoms, including leggings, among the bestsellers.

(Photo by Pat Greenhouse/The Boston Globe via Getty Images)