Lululemon profit plunges as North America slumps
Earnings per share fell 35% to $1.69 in the latest quarter as gross margin compressed 410 basis points.
Lululemon Athletica (LULU) reported a sharp profit decline in its fiscal first quarter, as a slump in North American sales offset still-strong but slowing international growth. The athletic-apparel retailer said net income fell 35% from a year earlier, while gross margin contracted more than 400 basis points.
The results marked a clear deceleration from prior quarters, with total revenue rising just 4% year-over-year to $2.5 billion—down from double-digit growth in recent periods. On a constant-currency basis, revenue grew only 2%. The slowdown was most pronounced in the Americas, where net revenue fell 3% (4% in constant dollars), extending a trend of declining comparable sales in the region.
International markets remained a bright spot, with revenue up 22% (16% in constant dollars), though growth has moderated from the 30%-plus rates seen in earlier quarters. Comparable sales in international stores rose 13% (8% in constant dollars), a slowdown from prior periods but still positive. The company attributed the international strength to expansion in China and other Asia-Pacific markets, where store count and digital sales continue to grow.
Gross profit fell 3% to $1.3 billion, as higher product and freight costs pressured margins. Gross margin compressed 410 basis points to 54.2%, while operating margin shrank 730 basis points to 11.2%, driving a 37% drop in operating income to $276.9 million. Diluted earnings per share fell to $1.69 from $2.60 a year earlier.
Inventories rose 2% to $1.7 billion, though unit levels declined 4%, suggesting higher costs rather than excess stock. The company continued to return capital to shareholders, repurchasing 2.2 million shares for $358.3 million during the quarter.
Looking ahead, Lululemon lowered its outlook, now expecting second-quarter revenue to decline 3% to 2% year-over-year, with earnings per share of $1.76 to $1.81. For the full year, revenue is projected to decline 1% to remain flat, with EPS guidance cut to $10.95 to $11.15. The revised forecast reflects ongoing pressure in North America, where consumer demand has softened, and a more cautious approach to inventory management.
Store expansion slowed, with just five net new company-operated locations added in the quarter, bringing the total to 816. Gross square footage grew by 52,000 square feet, a slower pace than in prior quarters.