Lululemon has reported an uplift in sales for the second quarter, but the worsening numbers in the US spark concern that the brand is losing market share.
For the quarter ended August 3, net revenue increased 7 per cent to $2.5 billion, with Americas revenue up 1 per cent and international revenue up 22 per cent.
Comparable sales edged up 1 per cent, as a 15 per cent increase in international markets was mostly offset by a 4 per cent drop in the Americas. Management said they were particularly disappointed in the US business results, as well as some aspects of product execution.
According to GlobalData MD Neil Saunders, the company appears to have reached a ceiling in its core Americas market.
“What was once a reliable growth engine is now sputtering, raising questions about whether momentum in the region has permanently slowed,” he said.
Saunders noted that the comparable sales decline marked a deterioration compared to the previous quarter. He added that the performance was way worse than the wider athleisure market, where spending is up by about 3.4 per cent.
The analyst pointed out two main reasons for the decline.
“First, the US market is much more competitive than it was even a few years ago, with a host of activewear and fashion players nibbling away at share. Our data suggest that even relatively loyal Lululemon shoppers are broadening their repertoire, increasingly willing to try alternative brands.
“Second, the competitive pressure is compounded by product assortments that, more frequently than before, feel bland and repetitive rather than distinctive and exciting.”
On the bottom line, operating income decreased 3 per cent to $523.8 million and operating margin decreased 210 basis points to 20.7 per cent. Net income fell 5.6 per cent to $371 million.
For the full year, Lululemon expects net revenue to be in the range of $10.8 billion to $11 billion, representing growth of 2-4 per cent, or 4-6 per cent excluding the 53rd week of last year.
The company also anticipates an estimated reduction in gross profit of $240 million, citing concerns about higher levels of tariffs on imports into the US and the removal of the de minimis exemption.
