Lululemon Shares Drop on Sour Outlook

Andrew Klips  |

Upscale yoga apparel maker Lululemon Athletica Inc. (LULU) on Thursday delivered results from the third quarter that topped analyst predictions, but investors saw through the lowering the top end of full-year earnings, less sales and flat same-store sales as a signal that the company is having a slow holiday season.

For the quarter ended November 3, Vancouver-based Lululemon reported net revenue of $379.9 million, up 20 percent from $316.5 million in the third quarter last year.  Net income was $66.1 million, or 45 cents per share, compared to $57.3 million, or 39 cents per share, in last year’s quarter.

On average, Wall Street was expecting EPS of 41 cents on revenue of $376.2 million.

Comparable-store sales, a key metric of growth that compare sales at store open more than one year, rose 5 percent.  Internet sales also were better, up 37 percent to $62 million, equating to 16.3 percent of total sales.  In the third quarter of fiscal 2012, direct-to-consumer sales were 14.3 percent of all sales.

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Lululemon has had its fair share of controversy in 2013.  In March, the company’s famous black yoga pants had to be recalled because they were too sheer.  Founder and chairman Dennis “Chip” Wilson angered women with comments last month that some women’s body shapes simply were not suited for Lululemon yoga pants.  Wilson said that thighs constantly rubbing together could wear out the material quickly.  Wilson is leaving his position as chairman in 2014, although he still will be seated as a board member.

Also out is chief executive Christine Day, who will be replaced by Toms’ president Laurent Potdevin in January.

In a statement today, Day said that the company is proud of its third quarter results, which beat the company’s guidance.  She added, "This so far has been a year of challenges, learning, and growth for Lululemon, and while our outlook for the fourth quarter is being impacted by both macro and execution issues.”

After stating that October was the best month in the third quarter, CFO John Currie said that business slowed down in November and early December.  Currie admitted that Wilson’s insensitive comments probably hurt sales.

Looking ahead, Lululemon sees fourth-quarter revenue in the range of $535 million to $540 million based upon flat comparable-store sales.  Earnings for the quarter are projected between 78 cents and 80 cents per share.  Analysts were expecting EPS of 84 cents on sales of $572 million.

For all of fiscal 2013, the company guided revenue to be between $1.605 billion and $1.61 billion.  During the summer and at the height of the black yoga pants debacle, the company had already lowered its full-year guidance to a range of $1.625 billion to $1.635 billion.

Lululemon is calling for profits for fiscal 2013 between $1.94 and $1.96 per share, down from the $1.97 the company previously expected.

Shares of LULU have fallen by 11 percent in Thursday morning trading to $60.83, their lowest level in nearly six months.

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