Why Is Lululemon (LULU) Stock Plummeting 10% Today?

On Friday, shares of popular athleisure retailer Lululemon Athletica Inc. (NASDAQ:LULU) are plummeting, down over 10% in early morning trading after the company reported its fiscal 2016 second quarter results.

Adjusted earnings per share came in at 38 cents, falling in line with the Zacks estimate and rising 11.8% year-over-year. Total revenues increased 14% to $514.5 million from $453 million in the second quarter of fiscal 2015.

Results were driven by continued momentum in Lululemon’s top line, accelerated gross margin growth, as well as efficient inventory management. Its bottom line, however, was impacted by unfavorable currency movements.

Total comparable sales, which includes comparable store sales and direct-to-consumer sales, gained 4%, or 5% on a constant dollar basis. Comparable store sales rose 3%, or 4% on a constant dollar basis, while direct-to-consumer increased 6% to $87.4 million, or 7% on a constant dollar basis.

Lululemon CEO Laurent Potdevin said that "The second quarter demonstrated strong results as we delivered sales and EPS at the high-end of our guidance and saw an important inflection in our gross margin and earnings performance."

Mr. Potdevin continued, saying "Our progress in the second quarter, especially in gross margin and inventory, marks the beginning of our recovery in profitability and sustainable long term growth."

Despite this strong performance, investors were not impressed by Lululemon’s comparable sales miss and weaker-than-expected guidance. While the company’s comps gain was a bright spot for Lululemon, it fell short of analysts’ 5.8% consensus estimate.

The yoga wear maker issued soft third quarter guidance of sales of $535 million to $545 million on earnings per share of 42 cents to 44 cents.

Year-to-date, LULU stock has gained over 46%. It currently holds a #3 on the Zacks Rank.

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