Initial DeclineWas surprised to see us in the red this morning given a positive market. Here is the likely reason. Looks like ATZ initially fell in reaction to the results from Lululemon but then rebounded based on better results from ANF and ANO.
On the decline
Lululemon Athletica Inc. said on Monday it expects holiday quarter gross margins to decline as the apparel maker grapples with increased costs amid a drop in consumer spending due to persistently-high inflation.
Shares of the Vancouver-based yoga pant maker fell almost 10 per cent in early trading.
A sharp rise in inventory levels has forced several retailers to offer discounts and mark down prices to clear excess stock, a move that has dented margins across the apparel sector.
“Our concern with Lululemon, despite how strong they have been performing in recent quarters, has been the amount of inventory that they have,” said Jane Hali and Associates analyst Jessica Ramirez, adding that excess inventories is where the issue with gross margin is stemming from.
Lululemon’s inventories at the end of the third quarter rose 85 per cent to US$1.7-billion.
The company said it expects gross margin to decline 90-110 basis points in the fourth quarter, compared with its previous expectation of an increase of 10-20 basis points, with William Blair analyst Sharon Zackfia calling the margin pressure “unexpected.”
Lululemon, however, raised its fourth-quarter net revenue forecast to between US$2.66-billion and US$2.70-billion, from its previous range of US$2.61-billion to US$2.66-billion.
It also tightened its outlook for fourth-quarter earnings per share to between US$4.22 and US$4.27, compared with its prior forecast of US$4.20 to $4.30.
In contrast, apparel retailers Abercrombie & Fitch Co. (ANF-N) and American Eagle Outfitters Inc. (AEO-N) issued upbeat holiday-quarter expectations on Monday, benefiting from strong demand across their brands.