Lululemon Athletica Inc. anticipates fourth-quarter sales to exceed market expectations, indicating that the upscale activewear brand is successfully competing against rising challengers amidst slowing consumer spending. The company projects revenue growth of 11% to 12%, bringing total sales to between $3.56 billion and $3.58 billion, an increase from previous guidance of up to $3.51 billion. This forecast also surpasses the average analyst estimate compiled by Bloomberg.
Lululemon expects strong fourth-quarter sales growth
Chief Financial Officer Meghan Frank stated that shoppers “responded well to our product offering” throughout the holiday season. Following this announcement, Lululemon’s shares climbed as much as 6.9% during premarket trading on Monday. The company plans to meet with analysts and investors at the ICR Conference later this week.
Lululemon has also adjusted its earnings per share guidance upwards, now forecasting a range of $5.81 to $5.85, increased from a previous maximum of $5.64. Chief Executive Officer Calvin McDonald intends to revitalize demand by broadening product styles and adapting to fashion trends that move away from the company’s traditional form-fitting clothing.
The company’s growth strategy aims for $12.5 billion in annual revenue by 2026, primarily through international expansion, online sales growth, and increasing products targeted at men. Despite Lululemon’s success, it faces competition from rivals offering similar products at lower prices.
Several apparel retailers, including Lululemon, Abercrombie & Fitch, and American Eagle, have also raised their holiday-quarter sales projections, driven by consumer demand for heavily discounted items. The 2024 holiday shopping season featured significant discounts, with the apparel sector offering the highest rates at approximately 33%, according to Salesforce data. Retailers like Target and Amazon have provided steep discounts to attract cost-conscious consumers.
11 stocks that Warren Buffett will never sell today
Despite strong sales projections from Lululemon, the trend of deep discounts could negatively impact margins for the current quarter, which typically concludes in January. Abercrombie’s shares fell about 11% prior to trading as it maintained its fourth-quarter margin forecast while increasing its sales growth target to between 7% and 8%.
Lululemon’s broader product range, including new colors and styles, contributed to its ability to raise margin and profit forecasts along with overall sales targets. Brian Jacobsen, chief economist at Annex Wealth Management, remarked, “It’s a mixed shopping bag. Lululemon did better than expected as they were able to fend off lower-priced copycats.” Similarly, American Eagle raised its operational profit target and reported modest growth in comparable sales.
On a separate note, Nordstrom raised its annual forecast last week, aided by strong holiday sales due to deep discounts attracting deal-seeking shoppers. In contrast, Macy’s struggled, expecting fourth-quarter net sales to fall within or slightly below its previously estimated range of $7.8 billion to $8.0 billion.
Retailers, including Urban Outfitters and American Eagle, also reported positive results. Urban Outfitters noted a 10% increase in net sales for the two months ending December 31, while American Eagle updated its fourth-quarter outlook, expecting an operating profit of around $135 million. Overall, the holiday shopping season data suggests sales growth may exceed initial expectations despite inflation concerns, with Mastercard SpendingPulse reporting a 3.8% year-over-year rise in retail sales (excluding automotive sales) from November 1 to December 24.
Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.
Featured image credit: Lululemon
