Retail stock under pressure: Lululemon Athletica Inc (NASDAQ: LULU)

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Lululemon Athletica Inc (NASDAQ: LULU) stock fell 4.4% on 12th June, 2020 (As of 11:57 am GMT-4; Source: Google finance). The company posted lower than expected results for the first quarter of FY 20. Net income plunged 70.4% to $28.6 million in the first quarter due to coronavirus-led store closures. Square footage increased 15% compared to last year due to the addition of 34 net new stores since Q1 of 2019. During the first quarter, the company opened four new stores, two in Mainland China, one in South Korea and one in Hong Kong. Excluding the temporary closures related to COVID-19, the company has closed six stores in the quarter, which were predominantly the Ivivva branded store closures which the company had planned. The company ended the quarter with $1.2 billion in total liquidity. The company had $823 million in cash and cash equivalents and $400 million of available capacity under the committed revolving credit facility.

LULU in the first quarter of FY 20 has reported the adjusted earnings per share of 22 cents, missing the analysts’ estimates for the adjusted earnings per share of 23 cents. The company had reported 17 percent fall in the adjusted revenue to $652 million in the first quarter of FY 20, missing the analysts’ estimates for revenue of $688.4 million, according to Refinitiv IBES data. The company’s yoga classes, which is popular among its target millennial shoppers, were also put on hold due to the pandemic, leading to a 17% fall in the revenue. However, the sales from its app and website rose 70% in the first quarter, with a 170% rise reported in Europe and 150% in Australia, as consumers bought more yoga and training products. The company posted the gross profit for the first quarter of $334 million or 51.3% of net revenue compared to 53.9% of net revenue in Q1 2019. The gross margin contraction of 260 basis points include 180 basis point increase in overall product margin due to lower product costs and favorability in product mix.

Furthermore, the company incurred the capital expenditures of approximately $52 million for the quarter compared to approximately $68 million in the first quarter last year. The company in the Q1 spent on mainly to store capital for new locations, relocations and renovations, technology spend to support the business growth, digital channel and analytics capabilities and supply chain investment.

For the second quarter, the company expects digital comparable sales to rise by about 125%. Total revenue could decline in the high single digits, improving to a high single-digit increase in the fourth quarter.

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