Lululemon stock falls after weak guidance despite massive Black Friday

Lululemon ($LULU) saw its best Black Friday ever, but that wasn’t good enough to match Wall Street’s hopes for the holiday season during the company’s latest financial release on Thursday.

The company guided for fourth quarter earnings per share (EPS) of $4.20 to $4.30 on revenue of $2.605 billion to $ 2.655 billion, compared to Wall Street estimates of $4.30 EPS on $2.65 billion in revenue.

“Black Friday was the biggest day ever in our history in terms of revenue and traffic, driven by our results in both North America and around the world, with guests responding well to the innovation we offer across our product assortment,” Lululemon CEO Calvin McDonald said during the company’s earnings call on Thursday, adding: “We also recognize that the external environment remains challenging with several high-volume weeks still in front of us.”

Lululemon stock fell about 12% on Friday morning.

The company beat Street estimates on revenue ($1.86 billion) and earnings per share ($2.00). The athletic apparel brand showed strong year-over-over year growth in other areas too with comparable sales (up 22%) and direct-to-consumer revenue revenue (up 34%), both beating Wall Street estimates.

The company also raised its full-year guidance for earnings per share and revenue.

“We’re not seeing a dramatic slashing of pricing in the first ten days of December,” Janet Joseph Kloppenburg of JJK Research Associates told Yahoo Finance Live (video above). “I’m pretty happy with what I’m seeing. I think there’s going to be clear winners and losers in the holiday period, and LuLu is in the winner camp.”

Kloppenburg highlighted Lululemon’s weakness in gross margins, an indicator of profitability, as a potential reason for the negative price action on the stock. Lululemon’s third quarter gross margin of 55.9% fell short of analyst expectations of 56.7%.

A person walks by a Lululemon Athletica store in Manhattan, New York, U.S., December 7, 2021. REUTERS/Andrew Kelly
A person walks by a Lululemon Athletica store in Manhattan, New York, U.S., December 7, 2021. REUTERS/Andrew Kelly

Higher markdowns, inventory provision, and foreign exchange drove the company’s weaker margins, according to Lululemon CFO Meghan Frank. But both Frank and McDonald defended the company’s increased inventory, which rose 85% year-over-year.

McDonald said Lululemon was "too lean" last year, and the company purposely beefed up its inventory this season. Those increases came in areas such as outerwear and the trendy belt bag, according to Frank.

“We strategically positioned inventory to be able to capture guest demand this year,” Frank said.

Inflation hasn’t come for athleisure just yet, either. McDonald said the retailer has increased pricing across about 10% of products but that the company has remained “comfortable” with its pricing.

“We continue to monitor [inflation], but our pricing decisions, I think, have helped to fuel our momentum this year, and we'll continue to take a similar approach as we look out to next year,” McDonald said.

Josh is a reporter and producer for Yahoo Finance.

Click here for the latest trending stock tickers of the Yahoo Finance platform

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app for Apple or Android

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube