Lululemon Shares Drop on Second-Half Outlook

Lululemon topped second-quarter estimates, but its view of the current quarter and second half may be weighing on the shares.

Shares of Lululemon Athletica  (LULU) - Get Report dropped on Wednesday after the athleisure-apparel retailer said it was "cautiously optimistic" about the second half.

The Vancouver company said that reduced store operating hours and social distancing initiatives due to the coronavirus would hurt store traffic in the second half. 

The company said on its conference call with analysts and investors that Lululemon together with Mirror would see adjusted earnings per share decline 15% to 20% in the third quarter and drop "modestly" in the fourth quarter.

"Our starting point is that the environment remains uncertain. Covid is not yet contained in many of the markets where we operate," Chief Executive Calvin McDonald said.

The company also expects current-quarter adjusted profit to fall as much as 20% due to higher marketing expenses. 

  • Analysts at Wedbush affirmed a neutral rating on the stock while lowering their price target to $340 a share from $380. 
  • Analysts at Raymond James maintained a strong-buy rating while and raised their price target to $400 from $335. 
  • BTIG Research affirmed a buy rating and pared their price target to $449 from $460.
  • Barclays maintained an overweight rating and lifted their price target to $382 from $347.

Shares of Lululemon dropped after hours Tuesday after the company reported its second-quarter results but before McDonald and other executives held their earnings conference call. 

Lululemon reported second-quarter earnings per share came in at 74 cents. Revenue of $902.9 million increased 2% even as 14 of its stores were still closed due to coronavirus. 

Analysts were expecting the company to report earnings of 55 cents a share on revenue of $842.5 million.

"As trends around the world are shifting to working and sweating from home with an increased focus on health and wellness, we believe 2020 is likely an inflection point for retail and for Lululemon," McDonald had said in a statement. 

"We are cautiously optimistic with regard to the second half of the year as we continue to navigate the uncertain environment."

Revenue from the company's direct-to-consumer segment more than doubled to $554.3 million. More than half of the company's revenue in the quarter came through its online presence. 

Lululemon shares at last check fell 7.8% to $322.44. The shares are trading at 2 1/2 times their 52-week low near $129, set in mid-March. They have slumped nearly 20% in the past week since setting a 52-week high near $400. 

Editor's note: Lululemon's revenue for the quarter has been updated.