What Lies Ahead for Lululemon Athletica Inc. After Its Earnings Stumble?

By Motley Fool StaffMarketsFool.com

In this segment from Motley Fool Money, Chris Hill recruitsSimon Ericksonto give investors some context following the 25% declineLululemon Athletica(NASDAQ: LULU)shares have suffered since releasing fiscal 2016 results. Weak guidance has scared off Wall Street, and the company will need to prove that it can branch out successfully from its core market.

A full transcript follows the video.

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This video was recorded on March 31, 2017.

Chris Hill: Shares ofLululemon Athleticafell 23% onThursday after a bad fourth quarter reportand guidance, Simon, that was dramatically lower than whatWall Street analysts were expecting.

Simon Erickson: Chris this is what happens whenRhodaPitcher leaves the company, right?

Hill: Tell me about it.

Erickson: Theexecutives of the company are saying they'repredicting the first same-store sales decline in the past 28 quarters. So, obviously, that's what the Street was reacting to, whenforward-looking guidance is that bad. A lot of this is because they really botched a lot of theironline sales channel, thevisual merchandising they were trying for the newdepth of color in spring. Didn't work out. They'recourse correcting. They say, "Don't worry about it, we have it under control."I'll give them a quarter to figure that out,but it is something that we need to see improved.I think bigger picture for Lululemon is,this is a company that's really carved out a very profitable niche in yoga,and they've done it very well. They have great margins off of that. Now,the company needs to learn how to expand their product categories. We've seen them grow very well with men's, they have the ABC line of pants and various other items -- 20% growth in men's year-over-year. We see the ivivva line for teenagers, that was up 28% year-over-year. And now you have international expansion, too. They're trying outsome new stores in China. But I think you have to seecalculated growth from Lululemon,because it's not just a nicheretailer of yoga pants anymore. It has tobecome a larger entity, and that's what the Street wants to see.

Chris Hill has no position in any stocks mentioned. Simon Erickson has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Lululemon Athletica. The Motley Fool has a disclosure policy.