Lululemon earnings top estimates, but shares fall after retailer cuts forecast for Mirror sales

Key Points
  • Lululemon reported fiscal third-quarter earnings and sales that topped analysts' estimates, prompting it to raise its full-year outlook.
  • The company is pleased with its early holiday season performance, said CEO Calvin McDonald.
  • However, Lululemon lowered its expectations for sales of its at-home fitness device, Mirror, for the year.

In this article

People line up to enter a store during Black Friday shopping at Fashion Outlets of Chicago in Rosemont of Greater Chicago Area, Illinois, the United States, on Nov. 26, 2021.
Joel Lerner | Xinhua News Agency | Getty Images

Lululemon's stock gave up gains in extended trading Thursday after the company slashed its sales expectations for Mirror, the at-home fitness device it acquired last year.

The athletic apparel maker reported fiscal third-quarter earnings and sales ahead of analysts' estimates, prompting it to boost its full-year outlook.

However, it said some shopper demand over the holidays might have been pulled forward, as consumers kicked off their gift buying earlier this year. As a result, its fourth-quarter outlook came in lighter than some analysts had expected. Management also cited supply chain issues that have left some categories of goods, such as outerwear, under stocked during key shopping days.

Lululemon shares were recently falling more than 2% in after hours, having closed the day down 2.1%.

Here's how Lululemon did in the three-month period ended Oct. 31 compared with what analysts were expecting, based on a Refinitiv survey:

  • Earnings per share: $1.62 adjusted vs. $1.41 expected
  • Revenue: $1.45 billion vs. $1.41 billion expected

Lululemon's third-quarter net income rose to $187.8 million, or $1.44 per share, from $143.6 million, or $1.10 per share, a year ago.

Excluding one-time items, it earned $1.62 per share, ahead of expectations for $1.41.

Sales rose about 30% to $1.45 billion from $1.12 billion a year earlier. That was ahead of expectations for $1.41 billion.

The boost was largely driven by Lululemon's men's business, which grew 44% year over year. Sales in womenswear, the company's core business, were up 25%. Lululemon has said its plans to double its men's division by 2023 are running way ahead of schedule.

Same-store sales, which measure sales at stores open for at least 12 months, rose 32%. In North America, sales were up 28% year over year, while revenue climbed 40% internationally.

The company is pleased with its early holiday season performance, said Chief Executive Calvin McDonald in an earnings release. Shoppers have been spending money on workout apparel such as leggings and sweat pants for themselves, but also as a gift for others.

McDonald later told analysts on an earnings call that the retailer's online sales on Thanksgiving Day this year were its highest in a single day on record.

Lowered outlook for Mirror

Last year, as consumers shifted from working out at the gym to working out at home, Lululemon made a $500 million bet on Mirror. But that bet is now making some investors weary.

On Thursday, Lululemon lowered its outlook for Mirror sales for the year to be between $125 million and $130 million, while previously it was looking for between $250 million and $275 million.

The company has opened shop-in-shops for the Mirror devices, which retail for $1,495, in about 200 Lululemon stores in the United States and Canada, to date.

"As you know, 2021 has been a challenging year for digital fitness," McDonald said during a call with analysts. "We will not chase growth at any cost. We simply don't need to."

The same pressures have hit rival Peloton, which recently slashed its 2021 revenue outlook. The at-home fitness space has been flooded with competition, but many consumers are also now choosing to head back to gyms or boutique studios.

Mirror founder Brynn Putnam stepped down from her role as CEO of the connected fitness company, CNBC reported in September. A successor has yet to be named.

Still, Chief Financial Officer Meghan Frank commented that the company feels "well positioned for a strong end to 2021."

For the fourth quarter, Lululemon expects revenue to range from $2.13 billion to $2.17 billion, and adjusted earnings per share between $3.25 and $3.32. Analysts had been looking for sales of $2.17 billion and earnings of $3.30 per share.

It raised its full-year revenue outlook to a range of between $6.25 billion and $6.29 billion. Previously, it expected revenue of $6.19 billion to $6.26 billion. Analysts had been forecasting sales of $6.27 billion.

It sees annual diluted earnings per share in a range of $7.38 to $7.45. After adjustments, it expects to earn between $7.69 and $7.76 per share. Analysts had been looking for full-year adjusted earnings per share of $7.51.

"There are some big weeks ahead," McDonald told analysts. "We're pleased with our position. We're pleased coming out of November. We knew that we needed to have a strong start to the quarter, and we achieved that."

As of Thursday's market close, Lululemon shares are up about 20% year to date. The company's market cap is nearly $52 billion.

Find the full earnings press release from Lululemon here.

Abercrombie & Fitch CEO: We're receiving goods on a weekly basis, so we have newness online and in store
Abercrombie & Fitch CEO: We're receiving goods on a weekly basis, so we have newness online and in store