Lululemon (LULU) is set to report its first quarter results after the closing bell on Wednesday amid slowing sales growth and concerns about growing competition in the athleisure space.
Analysts are worried the company, whose stock is one of the worst performers in the S&P 500 (^GSPC) this year, is losing customers to newer brands like Alo and Vuori. The recent departure of the company’s chief product officer has also weighed on shares that some on Wall Street have long argued are overvalued. Lululemon stock enters its earnings release down 40% this year.
“The pivotal LULU question right now is if the slowdown in its [North America] sales growth rate is temporary or signals that business is maturing with slow growth likely to continue for the foreseeable future,” UBS analyst Jay Sole wrote in a note previewing the event. “We sense investors will be looking to LULU’s Q1 report as a signal for the trajectory going forward.”
Here’s what Wall Street expects from the report, according to Bloomberg consensus estimates:
Revenue: $2.2 billion (Lululemon’s guidance: $2.175 billion to $2.2 billion) vs. $2 billion in Q1 2023
Earnings per share (EPS): $2.38 (Lululemon’s guidance: $2.35 to $2.40) vs. $2.28 in Q1 2023
Same-store sales: 6.35% year-over-year growth vs 14% in Q1 2023
Lululemon stock soared at the end of 2023, with shares hitting an all-time high of over $500 per share. This marked a 200% increase from 2020, as the company benefited from a boom in consumer demand for casual wear during the pandemic.
But sales growth has slowed in recent quarters. In Q4, revenue grew 16% compared to the year prior, down from 19% in Q3. For Q1, analysts are expecting revenue growth to be up less than 10% year over year. This has prompted some on Wall Street to question whether Lululemon’s dominance in the athleisure space is fleeting post COVID boom.
“LULU has been a notable laggard in our coverage this year due largely to concerns that upstart competitors such as Alo and Vuori are causing U.S. growth to slow,” Wedbush analyst Tom Nikic wrote in a note to clients on May 22.
In May, Lululemon announced its chief product officer Sun Choe was leaving the company, sending the stock tumbling 7% the day the news broke. The departure fueled the case for bears, like Jefferies analyst Randal Konik, who believe the company’s product assortment is “falling flat.”
“While the announcement didn’t include a revision to guidance, we believe this release could signal future top-line growth issues, driving weaker margin results moving forward,” wrote Konik, who has an Underperform rating and $240 price target on Lululemon.
Investors will be closely watching for any commentary on how the company plans to replace Choe and the overall trajectory for future sales growth. Wall Street expects Lululemon to guide for revenue growth of about 11% in the second quarter.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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