Lululemon Sees Holiday-Quarter Profit Plunging On Higher Marketing Costs

Yogawear maker Lululemon Athletica Inc said on Tuesday it was "cautiously optimistic" about the holiday season and forecast current-quarter adjusted profit to fall as much as 20% due to higher marketing expenses.

The company's shares, which have risen more than 50% this year, were down about 5% in extended trading.

Lululemon said it would ramp up marketing spending on Mirror, the at-home fitness company it bought for $500 million earlier this year, to capitalize on booming demand for home workout classes spurred by the coronavirus and the opportunity to drive business during the holiday season.

The investment in Mirror, which is expected to generate $150 million in 2020 revenue, comes at a time the yogawear maker was forced to halt its in-store yoga and fitness classes, a key marketing strategy that had brought in more shoppers to stores.

Lululemon said it was preparing for a number of scenarios and pulled forward its investments in the digital channel as the busy holiday season approaches.

"Our starting point is that the environment remains uncertain. COVID is not yet contained in many of the markets where we operate," Chief Executive Officer Calvin McDonald told analysts.

Lululemon's relatively small stores, which constrain the number of shoppers it can allow inside, and reduced operating hours would impact store traffic in the second half of 2020, the company said.

But to counter that, Lululemon said it would open 70 seasonal stores in key centers for the all-important holiday season to bring in more shoppers to its brick-and-mortar stores.

Lululemon's direct-to-consumer business, which includes online sales, jumped 155% in the second quarter ended Aug. 2.

Net revenue rose 2.1% to $902.9 million, compared with estimates of $842.5 million, according to IBES data from Refinitiv.

(Reuters)