Lululemon $LULU Athletica is struggling to reach U.S. consumers.
The athleisure brand’s stock dropped by more than 15% during early morning trading hours on Friday, after it reported its fiscal fourth quarter earnings on Thursday after the bell.
“In the U.S. is where we’re really navigating the dynamic retail environment with the consumer that is a little soft coming into the year,” Calvin McDonald, Lululemon’s chief executive officer, said during the company’s earnings call.
Even so, the Canadian apparel company modestly beat Wall Street’s expectations. The company generated $3.21 billion in revenue during the fourth quarter, or $5.29 earnings per share. Analysts had forecasted it would generate $3.19 billion, or $5.01 earnings per share.
Comfort and style, however, may not be enough to persuade cash-strapped consumers in the U.S., who are dealing with stubborn inflation, and looking to save money as they purchase only essential items such as groceries.
The company has felt the pullback. Lululemon’s McDonald said “the consumer environment in the United States has been somewhat challenging.” The company’s revenue only rose 9% in the U.S., while its international revenue grew by 54%.
The decline in U.S. revenue share has been in part due to the company’s additional initiatives, including a multiyear distribution center project, money to open new locations while renovating others, and investing in technology, McDonald added.
The company however, did see glimmers of light in some key areas. Lululemon is starting to see younger consumers spending on the company’s assortment of “smaller sizes and our offering of colors.” In addition, the company said it is seeing success from men who are purchasing the retailer’s casual “City Verse” sneaker, particularly “from our male guests in North America and in China.”
Looking ahead, Lululemon said it is issuing a “disciplined and agile” guidance for the 2024 fiscal year after it reported reported fiscal fourth-quarter net income of $669.5 million.
Lululemon expects revenue to be between the range of $10.7 billion to $10.8 billion with earnings to be between $14 to $14.20 per share.
In 2024, the company said it is planning to open five to 10 new stores in the Americas with the rest of “our international markets primarily in China Mainland,” adding that those additional revamps will include “15 to 20 optimizations.”
And like Nike $NKE, Lululemon is is making plans for the 2024 Summer Paris Olympics and Paralympic Games. During the events the company said it would be “revealing our kits for Team Canada.”
In 2021, Lululemon signed a multiyear partnership with the Canadian Olympic Committee and the Canadian Paralympic Committee.