Lululemon stock sinks following lowered outlook: buy the dip?

Lululemon Athletica Inc (NASDAQ: LULU) lost about 10% on Monday after lowering its earnings outlook for the current financial quarter.

Lululemon’s updated outlook for Q4

According to the athletic apparel retailer, its gross margin could contract by up to 110 basis points this quarter. Consequently, Lululemon now expects $4.22 a share to $4.27 a share of profit in its fourth financial quarter.

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That falls slightly short of $4.29 per share consensus. The Nasdaq-listed firm had previously guided for $4.20 a share to $4.30 a share. Reacting to the updated outlook, Jefferies’ Randal J. Konik said in a note to clients:

Looking ahead, we see dark clouds forming with difficult compares, peak margins, high inventory, and rising competition. Elevated promotional activity and markdown risk is likely to weigh on margins going forward.

Versus its high in early December, the Lululemon stock is down more than 20% at writing.

Lululemon stock reiterated at ‘underperform’

Konik stuck to his “underperform” rating on the Lululemon stock even though the multinational actually lifted its outlook for revenue.

It’s now calling for between $2.66 billion to $2.70 billion in revenue this quarter versus the analysts at $2.69 billion. Lululemon Athletica will be reporting its current quarter results on March 28^th.

Its previous guidance was for $2.605 billion to $2.655 billion. Warning on the earnings front, though, suggests it’s not as immune to the macroeconomic challenges as many believe.

Just days ago, its retail peer Macy’s Inc also lowered its revenue guidance for the holiday quarter, citing consumer weakness (find out more).