Here’s Why Lululemon’s Stock Is Falling so Much

Lululemon Athletica Inc. Chief Executive Officer Laurent Potdevin At New Hong Kong Store
Athletic apparel sits on display inside a Lululemon Athletica Inc. store at International Finance Centre mall in Hong Kong, China, on Monday, June 22, 2015. Lululemon Athletica opened their first retail store in Hong Kong on June 19. Photographer: Xaume Olleros/Bloomberg
Photograph by Xaume Olleros — Getty Images

Yogawear retailer Lululemon Athletica reported a lower-than-expected quarterly profit as bloated inventories and spending on international expansion squeezed margins.

Shares of the company, which cut its full-year profit forecast, fell about 8% Wednesday. The Vancouver-based company’s sportswear, once popular with health conscious “yoga moms,” has been losing out to companies such as Nike (NKE) and Under Armour (UA) that are focusing on the athleisure trend.

Lululemon (LULU) has responded by opening new stores all over the globe and has said it would continue to expand in Asia and Europe. But this has eaten into the company’s margins.

Operating margin fell to 14.2% in the three months ended Nov. 1, from 19.4% a year earlier.

The company has never fully recovered from a high-profile recall of overly sheer yoga pants in 2013; more recently, supply chain hiccups have hurt the company’s results.

Lululemon said in September that the supply chain issues had been resolved, but expects inventories to stay elevated as late spring and summer products joined fall and winter stocks.

Net income fell to $53.2 million, or 38 cents per share, from $60.5 million, or 42 cents per share, a year earlier.

On an adjusted basis, the company earned 35 cents per share, below analysts’ average estimate of 37 cents, according to Thomson Reuters.

However, revenue jumped 14.4% to $479.7 million, as same-store sales rose 6%.

Lululemon cut the upper end of its full-year revenue forecast to $2.04 billion from $2.06 billion. The company retained the lower end at $2.03 billion.

The company also cut its full-year earnings forecast to $1.81-$1.84 per share from $1.87-$1.92.

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