Lululemon Stock Plunges 11% on Disappointing Outlook—Key Price Level to Watch

Shares in Lululemon Athletica (LULU) plunged 11% in after-hours trading Thursday after the activewear maker provided an outlook that fell short of Wall Street expectations amid softness in its Americas business.

The Vancouver, British Columbia-based retailer sees current-quarter revenue ranging between $2.175 billion and $2.20 billion, indicating top-line growth of 9% to 10%. By comparison, analysts had expected sales of $2.25 billion. The company anticipates diluted earnings per share (EPS) for the period of $2.35 to $2.40, with the upper band of that guidance coming in below the $2.55 consensus view.

For the full year, Lululemon guided sales of between $10.7 billion and $10.8 billion compared to analysts’ estimates at $10.9 billion. Meanwhile, it projects midpoint diluted annual EPS of $14.10, falling short of the $14.13 a share Street expectation.

For the holiday quarter ending Jan. 28, the company posted earnings of $5.29 per share on revenue of $3.21 billion. Both metrics topped forecasts, which analysts had pegged at $5 a share in earnings on sales of $3.19 billion.

International sales in the quarter jumped 54% driven by growth in China. That helped offset stagnating sales in the Americas, which were up 9% from year earlier but down on the 29% growth reported in last year’s equivalent quarter, raising concerns that inflationary pressures on essential items are wearing down consumer discretionary spending.

“As you’ve heard from others in our industry, there has been a shift in the U.S. consumer behavior of late and we’re navigating what has been a slower start to the year in this market,” CEO Calvin McDonald said on the company’s earnings call. He also noted that a lack of sizing and color options had led to lower traffic and conversions in the U.S. market.

Since a bullish golden cross formed on the Lululemon chart in early April last year, the price has continued to trend mostly higher. Amid an earnings-driven sell-off, investors should monitor an uptrend line that sits in close proximity to the 200-day moving average as a potential support area, currently around $431. A failure to hold this key level could lead to a decline to longer-term support near $389.

Lululemon shares fell 11.1% to $425.77 in after-hours trading, hitting their lowest level since last November.

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As of the date this article was written, the author does not own any of the above securities.