Lululemon Tops Wall Street in Fourth Quarter, Warns Profits to Fall in Q1 Due to Recall

Andrew Klips  |

Lululemon Atheltica Inc. (LULU) said Thursday that profits in the fourth quarter increased 48 percent to beat analyst expectations, but reiterating warnings that the recall of yoga pants announced on Monday was going to sour earnings for the current quarter and full year.

Net revenue in the fourth quarter ended February 3, 2013 grew by 31 percent to $485.5 million from $371.5 million in the fourth quarter of 2011. The last quarter had 14 weeks while the 2011 quarter only had 13 weeks. Income from operations in recent quarter were $152.6 million, up from $116.1 million in Q4 2011. Adjusted earnings were $109.4 million, or 75 cents per share, compared to $73.5 million, or 51 cents per share, in the year prior quarter.

Both figures beat Wall Street predictions of EPS of 74 cents on revenue of $482 million.

Same-store-sales increased 10 percent during the fourth quarter on a 13-week to 13-week basis. The fourteenth week in the latest quarter would have added an additional $18.7 million in sales.

"The fundamentals of our business are strong, we delivered excellent results in 2012, and we plan to continue to earn the loyalty of our customers and shareholders every day going forward,” said Christine Day, chief executive at Vancouver, BC-based Lululemon.

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For the full fiscal year, the company reported a 37 percent increase in net revenue to $1.4 billion. Comparable store sales increased 16 percent on a constant dollar basis. Online sales boomed 86 percent compared to the year prior to $197.3 million. Adjusted earnings improved to $270.6 million, or $1.85 per share, compared to $184.1 million, or $1.27 per share, in the year earlier.

Lululemon, a company dubbed by Fortune as the sixth fastest growing company of 2012, announced a recall on Monday of its black Luon yoga pants due to the upscale workout apparel being too transparent (basically, they were see-through). Day said that the company is working closely with its manufacturers to remedy the problem. Last spring, Lululemon had to deal with transparency issues with some of its swimwear.

Lululemon revised its outlook for the current quarter because of the recall when it made the announcement early in the week and reissued it in today’s earnings news.

The yoga apparel maker now sees net revenue between $333 million and $343 million. Adjusted earnings are expected in the range of 28 cents to 30 cents per share. Lululemon had previously forecast revenue of $350 million to $355 million.

Analysts were calling for EPS of 40 cents.

For all of fiscal 2013, Lululemon guided net revenue of $1.615 billion to $1.64 billion and adjusted earnings per share between $1.95 and $1.99. The company said the recall of the pants to depress sales by $57 to $67 million for the full year with lost sales and associated costs negatively impacting EPS by 25 cents to 27 cents per share.

Wall Street was expecting full-year revenue of $1.68 billion and EPS of $2.17.

Lululemon's shares closed down by 0.3 percent on Wednesday at $63.88 and have fallen about 7 percent this week because of the recall. Shares are rising at the opening bell on Thursday with the earnings beat, up about 1.5 percent near $65 per share.

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