Lululemon, what I want to see
Lululemon is reporting earnings after the bell, and as mentioned in the video I made recently about the issues lululemon is facing, it is time to look ahead to see what we want to have clarified, because, with the stock down 35% from its latest earnings release, a bad report wouldn’t be optimal, to say the least.
I do have to mention that lululemon is the biggest holding in my social media portfolio, so I will have an interest in the stock doing well, and with that being said, let’s dive straight into it!
The video I referred to is this video, where I go into the issues the stock is facing.
So let’s start with the main problem, US growth.
There is no shortage of headlines telling us how the economy is bad and the consumer is being brought to its knees due to inflation. Buying expensive stretchy pants then shouldn’t really be a priority. This is also what the last earnings call somewhat indicated, as the guide was for very slow growth in the US. The CEO even said, “In the US is where we’re really navigating the dynamic retail environment with the consumer that is a little soft coming into the year.”
Not that great of a quote right? But it gets better because McDonald, the lululemon CEO, continued to say “We’re seeing a slowdown in traffic in the US, but it’s still positive and conversion is down slightly.” Now that really not great if you remember that US sales account for the largest share of its sales, by far.
So what can I want to hear? Better than expected growth would be nice, but it is a given to want to hear that. Otherwise, a plan going forward would be good to know, on how McDonald is planning to tackle the issues, because bringing in more color and sizes to the store may help, but you’d need people at the store, and conversion to stay high.
The second issue, Mexico
Why does lululemon all of a sudden look to acquire the Mexican franchise? Is it due to a slowdown in the US and trying to find the quickest way for additional revenues? Or is it simply a strategic move in order to get more of the economics of the growth coming from the country where there is still plenty of room for additional growth in store count?
This is important to know because “cheating” their way to growth, in order to hide the pain in the US wouldn’t be a good look at all. Cheating could be the wrong framing here because it is not really cheating but it is a simple way to divert attention from lagging growth in the US.
Trying to grow faster in Mexico would be a good reason because having the country filled with company-owned stores simply makes it capable of taking more of the economics from it.
Issue #3, shipping
In recent weeks, I have noticed more and more articles showing up about shipping rates going up. This is something to think about with lululemon, as their largest producers and manufacturers are located in Asia. This means that a lot of those products have to be shipped back to the US, and Canada. Having clarity on the fact if this is an issue for the company, would help with clearing the sky a bit. Rising costs aren’t good for margins, so keeping the pressure of those would be nice.
So what about the final issue?
We can put it slightly to rest as this one is already clarified. A few weeks ago, news broke that the Chief Product Officer left the company. At first, it looked like she just dipped and it seemed as if she was abandoning the ship. This turned out to not be exactly true as she has moved to Vans as their new CEO. This is not something that “just” happens and has been in the works for longer, so no abandoning ship there.
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