Canadian sportswear brand Lululemon said on Monday (9th) that due to the decline in consumer spending due to high inflation, it still expects a decline in gross margins in the fourth quarter of last year despite the company’s efforts to deal with rising costs. After the news, Lululemon shares fell more than 9% in early trading.
Before the deadline, Lululemon (LULU-US) fell 9.02% in early trading, and was tentatively reported at US$299.57 per share.
Some analysts pointed out that due to the sharp rise in inventory levels, many retailers have resorted to discount and price reduction strategies to clear their inventory, which has weakened the profit margin of the entire apparel industry.
Jessica Ramirez, an analyst at Jane Hali and Associates, said that while Lululemon has performed very strongly in recent quarters, there are concerns about the company’s inventory issues. She pointed to excess inventory as the root of the gross margin problem.
As of the end of the third quarter of last year, Lululemon’s inventory grew 85% to $1.7 billion. The company said it expected gross margins to decline by 90 to 110 basis points in the fourth quarter of last year, well below its previous forecast of growth of 10 to 20 basis points. William Blair analyst Sharon Zackfia said: “Margin pressure was unexpected.”
Although Lululemon lowered its gross profit margin in the fourth quarter, it raised its revenue forecast for the quarter to $2.66 billion to $2.7 billion, higher than the previously estimated range of $2.61 billion to $2.66 billion. Separately, the company raised its forecast for fourth-quarter profit per share to a range of $4.22 to $4.27, up from a previous estimate of $4.2 to $4.3.
In contrast, two other apparel retailers, Abercrombie & Fitch (ANF-US) and American Eagle Outfitters (AEO-US), announced optimistic fourth-quarter financial forecasts on the same day, benefiting from strong demand for their brands. The shares of the above two companies rose 4.25% and 1% respectively in early trading.