Lululemon’s stock still in red zone despite a strong quarter

Lululemon Athletica’s (NASDAQ: LULU) stock was down 4.5% in afternoon hours on Thursday despite the company reporting strong third-quarter 2019 results a day ago. The company beat revenue and profit estimates and raised its full-year 2019 guidance.

Revenues grew by 23%, helped by comparable sales growth of 16%. Net income rose 33%. E-commerce revenue totaled 26.9% of total revenue compared to 25.3% last year. However, the guidance for the fourth quarter was lower than what analysts were looking for and this sent the stock falling.

In its quarterly conference call, the company said it is aiming for annual growth in its core business in the low double-digits, doubling its digital and men’s businesses and quadrupling its international businesses by the end of 2023.

During the quarter, Lululemon made efforts to improve its digital shopping experience through the launch of new product display pages and the improvement of the search platform by focusing on personalization.

In its store channel, the company saw a 11% constant dollar comp store sales increase while in the digital channel, it delivered a 30% constant dollar comp increase.

Looking at the international businesses, Lululemon is growing its store count across Europe and Asia. During the third quarter, total revenue in Europe increased 29%. The company sees significant opportunities for expansion in China, especially Tier 2 cities like Hangzhou.   

Also read: Lululemon Q3 2019 Earnings Conference Call Transcript

The ecommerce business in China grew over 60% in the third quarter. The company is looking to double its store base in China this year and believes there is immense potential within China and Asia overall.  

For the fourth quarter, Lululemon expects revenues of $1.315-1.330 billion and earnings of $2.10-2.13 per share. Analysts were looking at EPS of $2.13 on revenue of $1.32 billion for the fourth quarter. 

For full-year 2019, the company raised its revenue outlook to a range of $3.895-3.910 billion from the prior range of $3.80-3.84 billion. The earnings guidance was raised to a range of $4.75-4.78 per share from $4.63-4.70 per share. 

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