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Financial Roundup: Lululemon Loses Steam, H&M Fires Up New Retail Concept

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Lululemon Athletica

When you’re a category leader, everyone looks to you to gauge the relative health of the market. With the release of their financial results today, Lululemon raised questions about the athleisure trend—and its place in it—while H&M piqued interest in a new brand, that’s a turn from the trendy aesthetic for which the flagship label is known.

Lululemon stock drops on 2017 guidance

Lululemon has investors nervous with a full-year guidance that misses the mark. The athletic wear company announced it expects net revenue for 2017 to be in the $2.55 billion to $2.60 billion range, just missing the $2.62 billion analysts had expected.

Comp sales for the year are expected to increase in the low single digits, following a dip in comp sales for the first quarter in the low single digits. The outlook for earnings per share is in the $2.26 to $2.36 range for the year, down from the $2.56 analysts had projected.

The company suffered its biggest one day stock decline in more than eight years. After the results were revealed, Lululemon stock dropped 23 percent, according to Reuters.

Company CEO Laurent Potdevin said the company has had a “slow start” to 2017, and cited competitors, promotions and assortment as primary issues.

The company reported net revenue for the year, ended Jan. 29, 2017, of $2.3 billion, a 14 percent increase over $2.1 billion in 2015. Comp stores sales increased by 6 percent during the period. Gross profit was 51.2% of revenue versus 48.4% during the prior year.

Analysts now wonder if consumers, no longer enthralled with the Lululemon logo, may be willing to shop the glut of other athleisure brands on the market today.

H&M goes upscale with new concept

H&M announced plans to unveil its eighth brand, Arket, which will launch this fall in London and online in 18 European markets. The new concept will focus on minimalist fashions for the family along with some home accents, all with a focus on quality and fit and a price point just above H&M’s. In addition to the main collection, Arket will also offer some external brands, and the stores will feature cafes in select locations.

The company also announced financial results for the first quarter, ended Feb. 28, 2017. Group sales were 54.37 kroner ($6.02 billion), a 7 percent increase over 50.62 kroner ($5.66 billion). Gross margin increased from 52 percent in the same period during the year prior to 52.1%.

Profits for the quarter were 3.21 billion kroner ($359 million), down from 3.33 billion kroner ($373 million) for the first quarter of the previous year, owning to lower sales growth and higher markdowns.

Though touted as a fast fashion pioneer, H&M’s CEO Karl-Johan Persson said it needs to be “even faster and more flexible,” especially where buying and allocation are concerned. To that end, H&M plans to beef up its supply chain with investments in logistics solutions for more automation and focus on optimizing lead times. The company will use these updates to garner advanced analytics with the goal of improving decision making.

The company is continuing with its omnichannel focus while also evaluating its brick and mortar locations, with an eye to closing some and refurbishing others. Meanwhile, H&M is also developing a new store concepts.

In addition to Arket, the company will open its first standalone H&M Home store in 2018, H&M stores will open in five new markets and the company will expand e-commerce into six more regions.

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