LULU Earnings Red Flags
This is not to judge or by any means rub it in⌠I have been humbled too many times to do that to other investors.
This is my attempt at sharing some deeper insights into the earnings today as a learning opportunity for all those interested.
These are the key red flags that in my opinion caused the decline, some are more obvious than others:
1. We have our fairly straight forward misses on revenue -4% and net income -11%
2. They opened 41 new stores last 12 months and still missed revenue targets by -4%
3. They cut FY guidance for the second time this year to now -5% vs FY2025
4. A major issue in my view is that comparable sales declined -9%⌠this is a metric that measures revenue growth from stores that have been open for at least 12 months, excluding any numbers from new store openings or stores closed. Itâs the best signal for the health of a retailerâs core business. Now in this case this is been a MAJOR decline in 1Q as you can see from the trend graph below.
5. Their crown jewel which was the Women Leggings business is down -20%
Now in my opinion another red flag came in some of answers to the earning callâs Q&A where the analysts DID NOT hold back, and here is one of the Q&As verbatim from the transcript and you can judge for yourselfâŚ
I hear a management team strugging to get above water not one whoâs confident in the direction of the company :
The Question:
âAs you talk about the product and the response to some of the new product that are out there, Meghan, you had mentioned in the prepared remarks that adjustments are being made. What are you seeing in response to the new product for menâs, womenâs tops and bottoms? I know youâre talking about leggings for womenâs down 20%. What adjustments do you see need to be made? Whatâs the timeline of them being made, and did pricing factor into any of it?â
The interim co-CEO Answer:
âIn terms of whatâs working today, away from body, I mentioned is working, Define Scuba are working. We did see some positive reception to our golf assortment and some attachment to our ABC Pant. We are experiencing some other new products that are not resonating as well, so weâre adjusting to that and reordering what is working. Weâve also seen some decline, greater than we expected in some of our core categories, including leggings that we mentioned. There, itâs also relevant that weâre shifting into away from body. Weâve really seen some positive response to that, and the shift has been happening over time but was a little more than we expected in Q2. So weâre chasing into that. Overall bottoms trends are down in the mid-single digits. So weâre offsetting to a degree, but not entirely. We are looking to improve our position in away from body over time.â
If youâre following the company I would recommend listening to the Q&A it was very insightful into the headwinds facing the business.
