Lululemon (LULU) shares slumped lower Friday after the high-end athletic wear retailer forecast a softer holiday season, linked in part to a pullback in consumer spending, that clouded a solid third quarter earnings report.
Lululemon said it sees earnings of between $4.20 and $4.30 per share over the January quarter, will revenues in the region of $2.61 to $2.65 billion. The upper-end of both figures largely matched Street forecasts, but were weighed in part by a significant build-up in inventories, which rose 84.5% from last year to around $1.7 billion.
Full year revenues were forecast between $7.944 billion to $7.994 billion, modestly higher than its previous estimate, based in part on an e-commerce growth rate of around 30% from last year's levels.
For the three months ending in October, Lululemon posted a bottom line of $2 per share, topping Street forecasts by 4 cents, with revenues rising 28% to $1.9 billion thanks in part to record Black Friday sales and solid e-commerce gains.
"The holiday season is also off to a good start with strong traffic over the extended Thanksgiving weekend, and a positive guest response to our holiday merchandise assortment, CFO Meghan Frank told investors on a conference call late Thursday. "In addition, we're in a much better inventory position this year to meet guest demand."
"However, I also want to acknowledge that we have several large volume weeks ahead of us, and our teams remain focused on connecting and engaging with our guests," she added. "The environment remains dynamic, and we still have approximately two-thirds of the quarter ahead of us."
Lululemon shares were marked 9.2% lower in early Friday trading to change hands at $340.18 each, a move that would nudge the stock's year-to-date decline to around 14%.
"Lululemon's results reinforce our view that brand strength and product newness, coupled with a broader shift toward the casualization of apparel, are enabling it to navigate a challenging environment better than most peers," said KeyBanc Capital Markets analyst Noah Zatzkin, who carries an 'overweight' rating with a $375.00 price target on the stock.
"Long-term, we continue to see opportunity in product innovation and international growth, and remain confident in management's ability to execute on its (growth strategy)," he added.
