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Shares of Lululemon Athletica Inc. fell after the maker of activewear decreased its gross margin forecast, igniting concerns about profitability for a second consecutive quarter.
The Vancouver-based company said in a statement on Monday that the gross margin is now anticipated to decrease by as much as 1.1 percentage points in the three-month span ending in late January, as opposed to an increase of as much as 0.2 percentage points in the previous projection. As of 9:45 a.m. in New York, Lululemon stock was down as much as 12%.
When the company—best known for its yoga equipment—reported lower-than-expected third-quarter profitability, its shares also fell at the time. Companies have had trouble controlling inventory levels across the retail industry, which can result in significant markdowns. Lululemon is no different, and Tom Nikic, an analyst at Wedbush Securities, says that the company’s declining gross margins are “troubling” in the midst of a stockpile.
Since we won’t hear from them again for a long (they are often one of the last businesses to fully disclose Q4 earnings, in late March), Nikic noted in a letter to clients, “We think investors might put this one in the ‘penalty box’ for a while.”
In advance of this week’s ICR Conference in Orlando, Florida, many retailers have provided early glimpses of their Christmas season outcomes. According to a release from Lululemon, management will meet with analysts and investors there.
Lululemon increased their forecast for fourth-quarter sales and reported that both in-store and online customer traffic is still high. With more locations, foreign expansion, and growth in the men’s business, the company hopes to double sales by the beginning of 2027.
The business is in a good position, according to GlobalData Plc’s managing director, Neil Saunders. Margin pressure is “more of a blip than a concerning trend,” the company is taking steps to cut expenses, he said.
In contrast to the average analyst estimate of $4.30, Lululemon now anticipates that earnings per share for the fourth quarter will be in the $4.22 to $4.27 range. The previous forecast called for EPS between $4.20 and $4.30.
