Lululemon Athletic (LULU) shares slumped lower Monday after the high-end active apparel retailer warned that profit margins contracted sharply over the final months of the year.
Lululemon said it sees fourth quarter revenues are likely to rise between 25% and 27% from last year to as high as $2.7 billion, a modestly higher tally than its December forecast, but noted that gross margins will fall between 0.9% and 1.1% , compared to its prior forecast of an increase of between 0.1% and 0.2%.
The company noted last month that September quarter margins had narrowed as a result of elevated inventory levels triggering higher markdowns on a host of products. Lululemon said it would offset the fourth quarter margin compression with accelerated cost cuts, adding that earnings will likely come in between $4.22 and $4.27 per share, compared to its December forecast of between $4.20 and $4.30 per share.
“We are pleased with our continued revenue growth and momentum in the business, as our teams navigate a dynamic macro-backdrop," said CEO Calvin McDonald. "In Q4, traffic remains strong across both physical and digital channels, and we anticipate delivering another quarter of solid earnings growth consistent with our updated EPS forecast."
"2022 has been a strong year for lululemon, and we remain focused on the significant opportunities ahead as we continue to deliver on our Power of Three x2 growth plan,” he added.
Lulu Lemon shares were marked 8% lower in late morning trading Monday to change hands at $302.86 each, trimming its six-month gain to around 7.9%.
Late Friday evening, Macy's M cautioned that its fourth quarter sales are likely to come in at the lower end of previous forecasts, while noting that consumers are likely to remained pressured heading into the first half of the year.
CEO Jeff Gennette said lulls in non-peak holidays sales were "deeper than anticipated", even as Black Friday and Christmas week activity were either in-line or ahead of forecasts.
Macy's said sees fourth quarter earnings hitting its previous forecast of $1.47 to $1.67 per share, with sales at the lower end of its $$8,161 million to $8,401 million range.
