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Lululemon Shares Sour After Softer Q4 Profit Guidance Offsets Q3 Earnings Beat

Lululemon topped Street forecasts for third quarter sales and profits, but softer guidance into the final months of its fiscal year has shares on the back foot heading into the start of trading Thursday.

Lululemon Athletica Inc.  (LULU) - Get Free Report shares traded sharply lower Thursday after the sports and leisure apparel retailer posted stronger-than-expected third quarter earnings but guided for only modest holiday-period gains for sales and profits. 

Lululemon said earnings for the three months ending on November 3 came in at 96 cents per share, up 35.1% from the same period last year and 3 cents ahead of the Street consensus forecast. Group revenues also topped analysts' forecast, rising 23% to $916 million as same-store sales surged 16% and profit margins topped 55%. 

Looking into the final months of the fiscal year, however, Lululemon said it sees earnings in the region of $2.10 to $2.13 per share, against a Refinitv forecast of $2.13, and a same-store sales growth rate in the "mid-teens".

"I'm super excited with the start of Q4," Lululemon CEO Calvin McDonald told investors on a conference call late Wednesday. "This momentum has extended into the quarter. We had record performance over the Thanksgiving weekend and we're happy the way that the holiday season has begun."

"We've always given guidance that we believe is realistic and appropriate, and our guidance for the full-year has always contemplated the comps in this range and our view hasn't changed," he added. "Obviously, what I'd want to draw everyone's attention to is the majority of the quarter is still ahead. There are six fewer shopping days between Thanksgiving and Christmas this year, which is a unique calendar shift and is reflected in our Q4 comp guidance."

Lululemon shares were marked 5.11% lower in early trading Thursday to change hands at $221.45 each, a move that would still leave the stock with a staggering year-to-date gain of more than 80% and a market value of just under $29 billion. 

“After a big stock run, Lululemon needed to top high same-store sales expectations in both 3Q/4Q to drive the stock higher,” said Credit Suisse analyst Michael Binetti, who carries a $250 price target and an outperform rating on the stock. “But we think 3Q results offered enough to build confidence that Consensus EPS estimates for 2020 should be rising over the next few months—and Lululemon commentary on the call suggested that its long list of long-term growth initiatives are trending above plan.”