(Bloomberg) -- Lululemon Athletica Inc. shares dropped as lower-than-expected profitability raised concerns about a pileup of inventory, while the the yogawear maker's full-year sales forecast disappointed Wall Street.
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Gross margin, a key gauge of profitability was 55.9% in the third quarter, short of analysts' average estimate of 56.7%. Inventories also surged from a year earlier - evoking similar problems experienced by retailers that have led to profit-busting markdowns.
"Gross margins came in well below expectations, which is a concern especially as inventories are up 85%," Bloomberg Intelligence analyst Poonam Goyal said. She added she'll be listening to executives comments on a call with analysts to see "whether this was a one time hiccup or something that will persist."
Lululemon raised its sales forecast for the full year ending in January to as much as $7.99 billion. Whle that's up from the previous range of as much as $7.94 billion, the low end was still below analysts' average estimate.
The shares fell 9.2% in after-market trading in New York on Thursday. The stock has declined about 5.6% this year through Thursday's close.
Chief Executive Officer Calvin McDonald said the company hasn't seen "any significant shift in spending among our guests."
"We're off to a strong start this holiday season and I'm pleased with our results over the extended Thanksgiving Day weekend," McDonald said in an interview. "Black Friday was the biggest day in our history in terms of both revenue and traffic."
Lululemon is looking to double sales by the fiscal year ending in early 2027 by opening more stores, expanding abroad and selling more products to men. It's also trying a new two-tier membership program to keep customers coming back.
McDonald said the company's manufacturing partners are back to full capacity. Freight times have also improved, although they remain higher than pre-pandemic, he added. The company has resorted to using air freight, which is more expensive, in recent years.
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