Lululemon Stretches Abroad But Stumbles At Home

Lululemon’s first quarter had enough international stretch to keep revenue moving, but Wall Street focused on the tear showing in the Americas. The athletic apparel company reported first-quarter revenue of $2.47 billion, up 4% from a year earlier, while diluted earnings fell to $1.69 per share from $2.60. Shares dropped about 7% in extended trading Thursday after Lululemon cut its full-year outlook, giving investors a quarter that grew globally but looked much tighter at home.

The weak spot was the Americas, where revenue fell 3% and comparable sales dropped 5%. That matters because Lululemon is still trying to prove its premium brand can regain momentum in its core market while competition in athletic apparel keeps pressing from every side. International revenue increased 22%, with international comparable sales up 13%, but that strength did not fully offset the concern that the company’s home-market engine is still sputtering.

Margins made the quarter harder to flex. Gross margin fell 410 basis points to 54.2%, while operating income dropped 37% to $276.9 million. Lululemon also said inventories rose 2% from a year earlier, though unit inventories declined 4%, a mixed signal for investors watching how much cleanup the company still has to do without leaning too heavily on discounts. The company is not broken, but the numbers showed a brand still working through a fit problem in its most important region.

That is why the guidance cut landed harder than the headline sales growth. Lululemon now expects full-year revenue of $11.0 billion to $11.15 billion, implying a decline of 1% to flat growth, and diluted earnings of $10.95 to $11.15 per share. With Heidi O’Neill set to take over as CEO in September, investors are looking for a product reset, stronger full-price demand, and proof that international momentum can be matched by a real recovery in the Americas. For investors, the question is no longer whether Lululemon can grow abroad, but whether it can regain its footing at home.

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