Lululemon’s strong Q2 sales overshadowed by swollen inventory, weak outlook, shares plummet


Lululemon shares tanked 16.4% on Thursday as sky-high inventory levels and weak forward guidance spooked analysts.

“Holy inventory, Batman!” was how Wolfe Research responded to the Canadian yogawear maker/retailer’s Q2 report

That response came despite a positive view on its earnings that came in at $47.7m/34 cents a share, just below last year’s $48.7m/33 cents. Analysts had expected 33 cents a share.

Revenue up 16% to $453m was also ahead of analysts’ $445.5m view. Comparable sales also jumped 11%.

CEO Laurent Potdevin was upbeat, saying Q2 revenue was driven by a “strong performance from both our store and e-commerce channels.

“Looking to the remainder of the year, our team is laser focused on meeting our strategic key goals: grow our global collective, relentlessly innovate our product lines and continue to create transformational experiences for our guests,” Potdevin said

However, Lululemon also reported Q2 inventory that totalled $280.6m, 55% higher than ta year ago.

CFO Stuart Haselden said delays at West Coast ports were largely to blame, an issue the company had highlighted on its previous earnings call.

“As a reminder, we identified opportunities to reflow approximately two-thirds of the late arriving inventory into our second-half assortments at full price with little incremental markdown risk,” he said. “The remaining third will be sold down through our normal exit channels, which includes our outlet stores, online warehouse sales, and physical warehouse sales.”

Lululemon raised its revenue outlook for fiscal 2015 to $2.025bn to $2.055bn from a prior $2bn-$2.05bn. But diluted earnings of 35-37 cents a share were below the 43 cents expected by analysts. The company guided full-year EPS of $1.87-$1.92 verses a consensus of $1.93.

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