Lululemon reported an 85% inventory increase, but don’t anticipate sales.

  • The sportswear manufacturer said Thursday that it placed large orders to meet demand for this year.
  • Calvin McDonald, CEO of McDonald’s, does not expect to lower prices in order to clear merchandise. 
  •  Increased inventory, and soft guidance, likely contributed to a drop in the company’s stock price. 

Lululemon announced Thursday that their inventory increased by 85% year-overyear. But unlike other companies that plan to discount merchandiseThe sportswear company isn’t planning to cut prices in an effort to clear overstocked stockrooms.

“Our inventory levels last year were too low, so we made the strategic choice to increase inventories this year,” CEO Calvin McDonald stated on a Thursday call with stock analysts. 

Lululemon reported a 28% jump in quarterly sales to $1.86billion for the quarter that ended October 30, compared to the $1.81billion expected by analysts according to FactSet. However, investors weren’t satisfied by the explanation for the higher inventory and quarterly guidance. After-hours trading fell 7% within two hours of the earnings reports. 

Lululemon expects earnings to range between $4.20 – $4.30 for its current quarter, which ended January 31. According to FactSet, analysts expected $4.30. The company anticipates revenue between $2.605 million and $2.655 millions. Analysts expected $2.65 billion. 

McDonald said the holiday shopping season is off to a strong start although the “external environment … remains challenging” given ongoing economic uncertainty. 

“Black Friday was our biggest day in terms of revenue, traffic and traffic,” he stated, pointing out the strength of several products, such as the company’s. belt bagShoes, outerwear, and clothing. 

Chief Financial Officer Meghan Frank stated that inventory should be cleared by the end of the current quarter. According to Frank, unit growth in inventory should average 39% on a 3-year compound annual growth rate basis by the end the quarter.

McDonald’s said that he doesn’t expect to reduce prices to sell merchandise faster, except for typical markdowns. 

He stated, “Great products, regular pricing is still selling.” 

McDonald’s claimed that the company raised prices on 10% of its products this year. He described it as a premium brand with “pricing power”, but he doesn’t expect to raise much more.

“What we don’t want to do is react too aggressively and create any impact on the demand for  our product,” he said. “Other (companies), that have priced up, are now heavily discounting and givingaway that perceived gain.”

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