Lululemon's Shares Show Little Improvement. Is There Potential for Recovery, or Is It Wise for Investors to Steer Clear?
Lululemon Athletica Inc. has reported its fiscal Q2 results, revealing a mixed picture of growth and challenges for the athletic apparel company.
The Canadian retailer's Q2 revenue climbed by 7% year over year to $2.53 billion, according to a company statement. However, the company's adjusted earnings per share (EPS) fell by less than 2% to $3.10.
Lululemon's valuation is lower compared to the struggling Nike, trading at a forward P/E ratio of around 11 times next year's analyst estimates. The company's market capitalization stands at $20 billion.
Internationally, Lululemon is seeing strong momentum, with China being a big growth driver. International revenue for Lululemon climbed 22%, with China contributing $392.9 million to the total. Same-store sales in China surged 17%, marking a significant growth in the Asian market. Comparable-store sales for Lululemon's international operations also surged 15%.
However, Lululemon's gross margin fell 110 basis points to 58.5%, and inventory levels increased 21% to $1.7 billion. The company has attributed these issues to product design development times and responding faster to market trends.
In response to these challenges, Lululemon has collaborated with tech companies and athletic brands to shorten product design development times and adapt more quickly to market trends.
Lululemon has also lowered its guidance for fiscal year revenue and adjusted EPS, with expected sales now between $10.85 billion and $11 billion, representing growth of 2% to 4%. The expected adjusted EPS is now in a range of $12.77 to $12.87.
Despite these ongoing issues, Lululemon is ready to take action to fix them. The company's brand reputation may no longer be sufficient for its growth, and it is recognised that innovation and faster action are necessary to get trends right.
As of NASDAQ trading on [current date], LULU shares have decreased by 18.59%, with the current price standing at $167.78.
In conclusion, while Lululemon's Q2 results show a mixed picture, the company is taking steps to address its challenges and capitalise on its international growth opportunities.
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