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Lululemon CEO Calvin McDonald Warns of Slow Start to 2024 in the U.S.

Lululemon Athletica Inc. finished strong for 2023 with a fourth-quarter earnings beat, but chief executive officer Calvin McDonald warned “there has been a shift in the U.S. consumer behavior of late, and we’re navigating what has been a slower start to the year.”

For the perennial outperformer — which continues to track ahead of its strategic goal to double sales over five years, hitting $12.5 billion by 2026 — it was an unusual splash of cold water.

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Shares of the Vancouver-based company fell 10.6 percent to $428 in after-hours trading on Wall Street.

But McDonald told analysts on a conference call that Lululemon remains both strong and flexible.

“We view this as an opportunity to keep playing offense as we lean into investments that will continue our growth trajectory,” the CEO said. “Outside the U.S., our business remains strong in all our international markets.

“Consistent with what we’ve seen from others in the market, the consumer environment in the United States has been somewhat challenging,” he said. “However, despite the market dynamics, we remain optimistic about our opportunities to grow our business in the U.S. in 2024 and to continue to gain market share. We have robust plans in place to further strengthen our position. We will continue to open and optimize our stores with plans for five to 10 new store openings and 15 to 20 optimizations. With U.S. sales per square foot above our overall average of $1,600, our stores remain among the most productive in the industry.”

McDonald said the company would continue to spend to boost its brand awareness in the U.S. with community-based events and larger brand campaigns.

DK Metcalf in Lululemon leaning on wall

DK Metcalf in Lululemon, which is looking to grow its men’s business.

“I know we have an opportunity in this market,” he said. “Our sizing in particular, in 0 to 4, is something we’re chasing into. Color, where we had color, it performed well. And honestly, we just did not have enough — and both of these attributes over-indexed in the U.S….We’re going to continue to play offense in the market. The innovation product pipeline remains very strong for this year, and we have some exciting brand initiatives in addition.”

He said that traffic has slowed in the U.S., but is still growing, while conversion is down slightly.

This is all a change of pace for Lululemon, which is more accustomed to powering through even when others in the fashion space struggle.

That was the case as recently as last quarter.

Lululemon’s fourth-quarter net income jumped more than fivefold to $669.5 million from $119.8 million a year earlier, when the bottom line was pulled down by $442.7 million in charges tied to the Mirror at home workout tech business.

Earnings per share rose 20.2 percent to $5.29 from adjusted results the year before, coming in 29 cents above the $5 analysts projected, according to FactSet.

Sales for the quarter ended Jan. 28 increased 16 percent to $3.2 billion — in line with what analysts penciled in. Comparable-store sales increased 12 percent with a7 percent gain in the Americas and a 43 percent jump elsewhere in the international business.

Lululemon opened 25 new stores during the quarter, ending the year with 711 locations.

A Lululemon store exterior
Lululemon added 25 stores in the fourth quarter.

Sales for the full year increased 19 percent to $9.6 billion.

But Lululemon sees that growth rate slowing and is projecting sales gains this year of 11 to 12 percent. That puts the top line in a range of $10.7 billion to $10.8 billion, with the help of an extra week in the current fiscal year.

Growth is seen as slightly weaker than that in the first quarter, when sales are slated to rise by 9 to 10 percent.

Lululemon no doubt has plenty of room to maneuver, but if it’s lost a step, the rest of the market could be falling even further behind.

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