Lululemon withholds guidance for 2020 due to COVID-19 as Q4 profits rise

VANCOUVER — Athleisure retailer Lululemon Athletica Inc. declined to provide a financial outlook for its current fiscal year as the impact of the COVID-19 pandemic unfolds.

“Given the rapidly changing nature of current events, we have decided not to provide financial guidance at this time,” said CEO Calvin McDonald during a conference call with analysts Thursday after the company released its fourth-quarter and full-year results.

The company’s European and North American stores have been closed since March 16 and it expects them to remain so until April 5. Its New Zealand stores, as well as those in Malaysia and a distribution centre in Washington state are also closed, and Australian locations are operating on reduced hours.

All of the company’s locations in China — except for one in Wuhan, where the novel coronavirus originated — are now open. The Wuhan store should open next week, McDonald said.

Lululemon’s digital business has picked up since the store closures, McDonald said, “but it’s obviously not recovering all the volume loss from our store networks being closed.”

While the company did not give quantitative guidance, chief financial officer Patrick Guido offered what he called qualitative insight into the 2020 financial year.

Early in the quarter, the strength of the company’s in-store and e-commerce businesses reinforces its view that the brand remains strong, he said.

“That said, we did see a dramatic slowdown in our business in conjunction with our store closure, and we expect this to have a negative impact on (the first quarter’s) comps, margins and EPS.”

Lululemon believes it’s well-positioned to rebound with a strong liquidity position. The company has more than US$1 billion of cash on its balance sheet and no long-term debt, Guido said.

The retailer is taking steps to mitigate the negative impact by reducing non-essential operating expenses and reprioritizing how it spends its capital. It has curtailed business travel, slowed hiring and is working with landlords to defer some store openings and remodels, among other things, Guido said.

The situation in China, whose stores were shuttered for two weeks, helps inform how things may unfold elsewhere, said McDonald. The company’s stores are now in their sixth week since reopening in China and business is getting better every day and week, he said.

The longer closures in North America and Europe may accelerate how quickly guests return to stores, he said.

The lack of annual outlook came as the Vancouver-based company said its net income jumped 27 per cent during its recently completed fourth quarter. Lululemon, which keeps its books in U.S. dollars, reported net income of US$298.0 million for the quarter ended Feb. 2 — up from $218.5 million in the same quarter the previous year.

Net revenue rose 16 per cent year over year to $1.4 billion in the quarter.

Diluted earnings rose to $2.28 per share in the fourth quarter from $1.65 per share in the same period a year earlier.

Analysts had predicted earnings of $2.24 per share, according to financial markets data firm Refinitiv.

Its full-year net profit surged 33 per cent to $645.6 million or $4.93 per share, up from $483.8 million or $3.61 per share. Revenues were $3.98 billion, up 21 per cent from $3.29 billion in 2018.

This report by The Canadian Press was first published March 26, 2020.

Aleksandra Sagan, The Canadian Press


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