lululemon athletica inc. LULU announced that it has temporarily closed 38 stores in China on Feb 21 in response to the coronavirus outbreak since Feb 3, 2020. The outbreak of coronavirus in China has given rise to a tough situation for companies operating in the region. The leading yoga apparel retailer is among the companies that are anticipating the current situation in China to have a material impact on its results.
The impact of the coronavirus can already be seen on China’s economy. Other companies such as V.F. Corp VFC, NIKE NKE and PVH Corp. PVH have also recently closed stores due to coronavirus outburst. NIKE has temporarily closed nearly half of company-owned stores in Greater China, while V.F. Corp closed about 60% of its owned and partnered stores in China. Moreover, PVH Corp. has temporarily closed majority of the total Tommy Hilfiger and Calvin Klein stores (company-operated and franchise) in China.
Coming back to lululemon, it noted that the open stores are operating with reduced hours while online business has continued to operate. Given the epidemic outbreak in the country, lululemon is prioritizing on health and safety of employees. Consequently, it expects China operations to witness softness in the near term, which should have a pronounced impact on overall results.
The company also stated that it is monitoring the effect of current situation and will provide an update on financial and operational impacts from the coronavirus outbreak on its fourth-quarter results.
lululemon had earlier projected fiscal fourth-quarter revenues of $1.370-$1.380 billion. The guidance is based on constant-dollar comparable store sales (comps) growth of mid-to-high teens. Further, the company projected earnings per share of $2.22-$2.25.
However, the company remains confident about the long-term growth opportunities in China. Its diversified business and operating model in other key regions keep it well placed to navigate the impact of the coronavirus condition.
Apart from these, the company is benefiting from solid progress on the Power of Three strategic plan, which aims at doubling sales in the men’s and digital categories, and quadrupling revenues in the international unit by 2023. Also, its focus on product innovation and international growth bodes well.
We note that shares of this Zacks Rank #2 (Buy) company have increased 40.4% in the past six months compared with the industry’s growth of 12.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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