Lululemon(Q4 revenue and profit exceeded expectations, performance guidance is disappointing, US market outlook is worrying.)

After the U.S. stock market closed on Thursday, the yoga brand Lululemon Athletica (LULU.US) announced its performance for the fourth quarter of the 2024 fiscal year ending on February 2, 2025. The data showed that the company's Q4 revenue was $3.6 billion, a 13% year-on-year increase, beating market expectations; diluted earnings per share were $6.14, also exceeding market expectations. However, Lululemon released disappointing annual guidance and expressed concerns about U.S. consumer spending, causing the stock to plummet after-hours. Lululemon CEO Calvin McDonald stated that due to political conflicts and high inflation caused by the GEO Group Inc, U.S. consumers are cutting back on spending and visiting stores less frequently. As trade tensions between the U.S. and other countries continue to escalate, the Vancouver-based company is trying to revive slowing sales. McDonald said in a phone conference with analysts, "We are in a dynamic macro environment that is causing consumers to be cautious, and we have seen significant impacts on foot traffic across the industry." Lululemon expects its revenue for the 2025 fiscal year to be between $11.15 billion and $11.30 billion, lower than Wall Street analysts' expectations. The revenue guidance for Q1 of the 2025 fiscal year is also below market expectations. Bloomberg Intelligence analyst Poonam Goyal stated that this forecast "signals a significant slowdown over the past several quarters." McDonald is working to increase demand by expanding product categories and entering new categories such as golf, tennis, and running gear. The company has been responding to evolving fashion trends, attempting to cater to shoppers who prefer loose styles rather than the brand's signature tight-fitting clothing. Lululemon management stated that tariffs imposed by President Trump on China and Mexico will have a slight impact on profit margins. Regulatory filings show that Lululemon's products are mainly produced in Asia, including Vietnam, Cambodia, and Sri Lanka. Competitor NIKE, Inc. Class B also mentioned macro trends in their forecast last week, warning that their revenue and profitability will further decline due to "political dynamics of GEO Group Inc, new tariffs, unstable foreign exchange rates, and tax regulations." Jefferies Financial Group Inc. analyst Randal Konik pointed out that another potentially concerning signal for Lululemon investors is the mountains of unsold inventory. Global inventory levels have increased by 9% compared to the same period last year. Three years ago, McDonald set a long-term strategic plan to double Lululemon's sales by 2026, reaching $12.5 billion. The company is sticking to its target for next year, but increased competition has slowed growth, especially in North America. In the fourth quarter ending on February 2, comparable sales in the Americas for Lululemon remained flat. International businesses performed better, with a 22% increase in sales. The Chinese market is a key growth engine for Lululemon, with a 39% increase in revenue in the fourth quarter. According to Morgan Stanley data, the brand became the third largest foreign sports apparel brand in the Chinese market last year. As of writing, Lululemon is down 10.11% after-hours, at $307.0.