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Translating Lululemon’s Inverted Language

By Linda McDonough on April 5, 2017

Lululemon dropped a shocking 24% last week when it reported its fourth quarter. Although revenue and earnings were in line with expectations, estimates for the first quarter and entire fiscal year were cut dramatically.

First quarter earnings are now expected to drop 21% instead of the 18% increase expected by analysts. Annual earnings are expected to show little growth instead of the prior expectation of 16%.

Just as a new yoga student might need a translator to know that adho mukha shvanasana simply means downward dog in sanskrit, investors in Lululemon Athletica (NSDQ: LULU) could use some help deciphering management’s comments from its fourth quarter conference call.

In times of trouble, public company managements often take to grandiose phrasing to hide the ugly truth. Typically this involves the use of words like, “challenging”, “pivoting” or “transition year”. The final one can inspire fear in the hearts of bulls as it typically means no earnings growth for at least 12 months.

I’ve been perusing earnings transcripts for over 25 years, and the language presented by Lululemon’s management was downright impressive. It’s one of the more stretched examples I’ve seen, an indication that Lulu may have more muscle cramps in its future.

My translation of the effusive call is below. The emphasis on italics is mine:

LULU: Despite a slower start in Q1, 2017 is set up to be one of our most compelling years, with unprecedented product innovation and our sales global brand activations to drive growth towards our long-term vision.

Translation: Despite the fact that most of you thought we’d turned the corner on product issues, the problems are a bit deeper than we thought. You may not see any improvement in earnings this year, but we’ll be introducing new product hand over fist. The time needed to hit our long term vision just got a little bit longer.

LULU: With focused urgency, our teams have been course-correcting the issues, with early indications reflecting an immediate and positive impact on performance.

Translation: We’re freaking out over here.

LULU: Through this disruptive and innovative campaign, we will strengthen our guest loyalty while also inspiring millions of new guests to join our growing collective.

Translation: We’re ratcheting up our marketing dollars because we need to find some new customers who don’t already own four pairs of yoga pants.

LULU: Turning to product. The performance of our core business will be powerfully augmented, with an unprecedented current of innovation between now and the end of the year.

Translation: We’d better figure out how to make these yoga tops more interesting because we’ve got a heck of a lot of them to sell before year-end.

LULU: Following extensive R&D, and in partnership with our athletes, in early May, we will reveal our newest whitespace innovation with a bold new concept that will disrupt the bra category and redefine women’s expectations of active bras.

Translation: It seems that all of our customers have enough active bras. We’re working on some new styling that will hopefully re-ignite limp demand.

LULU: This full year guidance reflects our view of strengthening trends in both e-commerce and stores as a result of the strategies we’ve mentioned around product assortment improvements, website enhancements and acceleration of our omnichannel model, and we are starting to see evidence of these strategies now materializing.

Translation: We haven’t seen a change in poor performance yet, but guidance includes quite a bit of hope that sales improve so we’re keeping our fingers crossed.

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