Lululemon Athletica Inc (NASDAQ:LULU) continues to see strong customer interest in new products, but weaker foot traffic has weighed on its outlook, analysts say.
The athleticwear company’s shares are down more than 14% on Friday following yesterday’s earnings release that showcased weak first-quarter guidance, overshadowing its stronger-than-expected fourth-quarter results.
For Q4 of fiscal 2024, Lululemon reported earnings per share (EPS) of $6.14, surpassing the expected range of $5.81 to $5.85, driven by an 8% increase in sales excluding the 53rd week.
However, the company issued a subdued forecast for Q1 2025, predicting EPS in the range of $2.53 to $2.58, which fell short of analysts' expectations of $2.74. The company also projected Q1 revenue between $2.34 billion and $2.35 billion, representing growth of 6% to 7%, but missing the consensus estimate of $2.39 billion.
Can LULU improve North America sales?
Despite the weaker outlook, analysts at Bank of America reiterated their "Buy" rating but lowered their price target to $400 from $480.
Analysts lowered their full-year EPS estimate for fiscal 2025 by 2%, now projecting $15.15, citing pressure on margins from tariffs, foreign exchange fluctuations, and higher operating expenses.
“The strong customer response to newness gives us confidence that LULU can improve NA sales growth when traffic stabilizes,” Bank of America wrote Friday.
Analysts noted that Lululemon's recent product launches, including the Glow Up and Daydrift lines, have been well-received by customers, with the company aiming to turn some of these products into core franchises.
Looking ahead, Lululemon expects moderate growth in the Americas, with stronger performance in Canada, while international markets, including China, are anticipated to continue expanding at a slower pace compared to last year.
The company's first-quarter forecast includes expectations for sales growth of 6% to 7%, with the Americas seeing low- to mid-single-digit growth, while international markets are projected to grow at a rate of 20% in regions outside China. Lululemon also noted a 25% growth outlook for its Chinese market, although this represents a significant slowdown from last year's 43% growth.