Retail

Lululemon shares crater on weak outlook

Why LULU is getting crushed after hours
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Why LULU is getting crushed after hours

Shares of Lululemon tumbled 17 percent after hours Wednesday, as investors overlooked the company's fiscal fourth-quarter sales and earnings growth and focused on its slow start to 2017.

The athletic wear maker expects to earn between 25 cents and 27 cents a share during the quarter, well below Wall Street's consensus forecast of 39 cents a share, according to Thomson Reuters.

Lululemon's sales outlook also fell short of analysts' expectations, due to a slowdown in store traffic and fewer online shoppers making purchases. Lululemon expects to ring up between $510 million and $515 million in fiscal first-quarter revenue, compared with Wall Street's expectation of $552.3 million.

Analysts were more focused on Lululemon's outlook than its fourth-quarter results, which it had already preannounced.

"We own it, and by owning it we also mean that we know how to fix it," CEO Laurent Potdevin told investors on the company's earnings call.

3 things to watch in Lululemon's earnings report
VIDEO1:0601:06
3 things to watch in Lululemon's earnings report

Potdevin attributed the company's slowdown to missteps in its assortment and the way it presented its merchandise online. Specifically, the products didn't include enough color and were shown in static fashion on its website.

The company expects tweaks to its assortment and website, along with new products in categories like sport bras, to help its sales recover in the second quarter and beyond. Lululemon, which has typically relied on grassroots marketing, will also launch its first global brand campaign in May, Potdevin said.

However, the company's weak outlook comes a week after Nike reported revenue that missed Wall Street's expectations, adding to investors' concerns about a slowdown in the crowded athletic wear market.

For the fiscal year, Lululemon expects to earn between $2.26 and $2.36 a share on revenue of $2.55 billion to $2.60 billion. Both of those forecasts are lower than Wall Street's expectations.

Despite its sour outlook, Lululemon delivered a solid holiday quarter. Revenue increased 12 percent to $790 million, topping Wall Street's expectation of $783.6 million. Adjusted earnings per share rose 18 percent, to $1. That was just below the consensus forecast of $1.01 a share.

Meanwhile, the company's gross margin continued to march higher, topping expectations as it benefited from a more efficient supply chain.

Lululemon's comparable sales increased 7 percent, topping the 5.4 percent growth estimate provided by FactSet. However, it expects that metric to slow considerably in the current quarter, and decrease by a low-single digit percentage.

Shares of Lululemon are up more than 8 percent over the past year.

For more on Lululemon, tune into "Mad Money" Thursday at 6 p.m. EST for an interview with CEO Laurent Potdevin.