lululemon Beats Analysts in Q2, but Shares Sink on Outlook

Andrew Klips  |

Shares of lululemon athletica Inc. (LULU) are sliding in premarket trading Thursday after the yoga apparel retailer posted better than expected profits and revenue in the second quarter, but slashed its guidance for the year below consensus estimates.

For the quarter ended August 4, the Vancouver, British Columbia-based company reported revenue of $344.5 million, up 22 percent from $282.6 million in last year’s quarter.  Net profits were $56.47 million, or 39 cents per share, compared to $57.22 million, or 39 cents per share, in the second quarter of 2012.

Wall Street was expecting EPS of 35 cents on revenue of $343.2 million.

Same-store sales increased 8 percent.  Internet sales jumped 39 percent to $49.4 million, accounting to 14.3 percent of total revenue and representing a 12.5-percent improvement from last year’s quarter.

Gross profit rose 19 percent to $186.0 million, but, as a percentage of net revenue, declined to 54.0 percent from 55.1 percent in last year’s quarter.  Selling, general and administrative expenses increased from $85.57 million last year to $106.97 million.

The company has been fighting to overcome a setback in March when it had to recall and remake its wildly popular black luon yoga pants because they were too sheer.  It took more than two months for the corrections to be made, allowing competitors like Macy’s (M) to boost their rival products and put pressure on lululemon.  Today, lululemon also announced a new strategic global alliance for X-Static with Noble Biomaterials that allows the company to use the antimicrobial technology in its performance apparel.

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"…our exclusive partnership with Noble announced today and additional sources for luon will help to ensure that lululemon remains a distinct leader in quality and innovation,” said Christine Day, lululemon's CEO who disclosed in June that she is leaving the company as soon as a replacement can be found.  She added, "We are well on our way to finishing 2013 as a much stronger company than when the year began. I am confident that the leadership currently in place coupled with a new CEO will have tremendous success leveraging the platform for growth."

No comments were made in the report about the search for a new CEO.

The Company ended the second quarter of fiscal 2013 with $610.3 million in cash and cash equivalents compared to $444.3 million at the end of the second quarter of fiscal 2012.

For the current quarter, lululemon expects net revenue to be in the range of $370 million to $375 million and comparable-store sales percentage increase in the mid-single digits. Profits are expected to be in the range of $0.39 to $0.41 for the quarter.  Analysts were expecting EPS of 44 cents on sales of $389.4 million.

For all of fiscal 2013, the company sees revenue between $1.625 billion and $1.635 billion and earnings in the range of $1.94 to $1.97.  The new outlook is down from previous guidance of revenue between $1.645 billion and $1.665 billion and earnings in the range of $1.96 and $2.01 per share.  Wall Street was expecting fiscal 2013 earnings of $1.99 per share on revenue of $1.67 billion.

Shares are down more than 7 percent in pre-market trading at $64.00 from Wednesday’s closing price of $69.02 (which was down 1.5 percent for the day and adding to similar size losses on Tuesday).  Through Wednesday, shares were down about 9 percent in 2013.

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