Lululemon stock plummets as inventories soar

Lululemon Athletica Inc. stock fell more than 10% in the extended session Thursday after the athleisure-wear maker reported mixed quarterly results and saw inventories soar.

In the third quarter, Lululemon LULU earned $735 million, or $2 a share, compared with $541 million, or $1.44 a share, in the same quarter last year. Lululemon LULU earned $1.62 a share, adjusted for one-time items.

Revenue went up 28% to 1.9 billion, the company said. Same-store sales were up 22%.

According to FactSet, analysts expected Lululemon to earn $1.97 a share of revenue of $1.81 billion. Same-store sales were expected to increase by 19.1%.

Despite an operating environment that remains dynamic, Chief Financial Officer Meghan Frank said in a statement that we are proud to have delivered another quarter of strong sales and earnings growth.

The retailer said inventories increased by 85% to $1.7 billion, compared to $900 million at the end of the third quarter of 2021.

The company believes its inventories are well-positioned to support its expected revenue growth in the fourth quarter.

Lululemon guided for fourth quarter revenue between $2.605 billion and $2.655 billion, and adjusted EPS between $4.20 and $4.30.

The company expects to make revenue between $7.944 billion and $7.994 billion for the full year, and adjusted EPS between $9.87 and $9.97. FactSet consensus calls for an EPS of $9.92 on sales of $7.935 billion.

Analysts were optimistic about Lululemon heading into the results, saying the company was able to keep its prices higher even as other retailers cut their prices.

Retailers have slashed prices on clothing to try and entice customers, following an inflation-induced shift in consumer spending to necessities. Raymond James analysts said this week that they found that Lululemon didn't have broad-based promotions in the third quarter, or fourth quarter so far.

They said the company leaned on its We Made Too Much section to iron out its inventories. They said that business in China could be a curveball due to the country's COVID 19 restrictions.

Piper Sandler analysts said in October that Lululemon remained more insulated from big markdowns than other clothing retailers.

The Lululemon stock is down 4% this year. The S&P 500 Index SPX has slid 17% over that time.