Lululemon Athletica Inc (NASDAQ:LULU) anticipates a less-than-stellar fourth quarter, projecting revenues and profits that fall short of expectations. This foreshadows a challenging holiday season, with consumers tightening their belts and scaling back spending on high-end apparel and accessories.
The Vancouver-based company witnessed robust demand for its athleisure and comfortable clothing in previous quarters. However, as the cost of living rises, some of its customer base has begun cutting back on splurges for premium clothing.
This downbeat holiday forecast from Lululemon aligns with sentiments expressed by other major U.S. retailers like Kohl’s (NYSE:KSS), indicating a potentially turbulent start to the festive shopping season.
Lululemon predicts fourth-quarter net revenue between $3.14 billion and $3.17 billion, with anticipated profits ranging between $4.85 and $4.93 per share—figures that fall below analysts’ estimations based on LSEG data.
Although there was some optimism in customer spending during the Thanksgiving weekend sales, a significant portion of consumers has either curtailed expenditure or opted to delay shopping until closer to Christmas.
A recent report from the Commerce Department’s Bureau of Economic Analysis highlighted a slowdown in consumer demand. This decline is attributed to various factors such as higher borrowing costs, the resumption of student loan repayments, and reduced savings among low-income households due to inflation.
Despite these challenges, Lululemon did experience a positive uptick in third-quarter gross margins, climbing 110 basis points to reach 57%. This improvement was aided by reduced production costs and lower expenses related to freight.
Moreover, the company outperformed expectations in the third quarter, surpassing projected results and raising its annual profit and revenue forecasts.
Lululemon has revised its full-year 2023 profit expectations to fall between $12.34 and $12.42 per share, an increase from its earlier forecast of $12.02 to $12.17. Similarly, it now anticipates net revenue between $9.55 billion and $9.59 billion, surpassing the earlier estimated range of $9.51 billion to $9.57 billion.