In This Article:
Lululemon Athletica (LULU) reported a weak first quarter outlook in its fourth quarter earnings, sending the stock lower.
John Kernan, TD Cowen managing director of retail and consumer brands, joins Morning Brief to discuss the company's results and the state of the consumer.
To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.
Lululemon plunging today as its weak outlook overshadows strong fourth quarter results. The athletic apparel maker warning of slower sales as consumers pull back due to economic and inflation concerns. Joining us now is John Kernan, TD Cowen's Managing Director of Retail and Consumer Brands. Thank you so much for being here with us, John. Just curious, so just two days ago here, you reiterated your buy and your price target on the stock with some caution in your note. Does this result change anything for you on your call?
Our estimates didn't change materially post this earnings release. I think Q4, we knew was very good internationally. Uh they'd already pre-announced Q4 positively and their gross margin was even up above where we thought it would be at an all-time high of 60%. I think the stock's reaction today is more in line, is in reaction to the guidance for US, the implied guidance for US comps, which is clearly negative as we go into Q1. So they've got to get that Americas business turned around and comping positively.
What does this Lululemon guidance say about the state and the mindset of the consumer?
You know, the consumer clearly saw a big slowdown in February and we, it's continued through early March. Uh and I think when you look at, we came out of a very strong holiday and I think everybody felt good about the consumer, but the headlines have changed, consumer confidence has radically changed. And right now, the consumer is in a period of of hesitation when it comes to discretionary spend.
Does Lululemon need to open up its model a little bit more? I mean, this is a brand that really struck such a chord on the D-to-C business that it changed the models for years of some of its biggest competitors. And then they were very selective about which gyms, which boutique experiences that they were going to partner and sell into as well and allow them to kind of co-brand. But all those things considered, they've never had this massive wholesale or retail type of partnership. Is that something that they should be considering?
We'd prefer for them to stick to DTC. There are, there's some very select upscale premium wholesale distribution that they have, but again, this, what makes the magic of Lululemon is their in-store experience, directly controlling their brand. Um and I think that's been an advantage for them over time both in store and online. Um they've been increasing marketing recently. It was up 50 basis points as a percent of sales. This isn't a company that spends a tremendous amount on marketing compared to some of the peers, but that's an item we're watching to see if it rises even further.
