Lululemon Athletica Q2 Beats Estimates, But Gives Conservative Outlook

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“Mountains, rock climbing, longboards and good friends:” September looks at Lululemon

“Mountains, rock climbing, longboards and good friends:” September looks at Lululemon

Vancouver—Although Lululemon Athletica reported late Thursday second quarter earnings that beat estimates, the yoga-apparel and accessories retailer lowered its full year forecast on fears of late deliveries.

For the quarter ended August 4, Lululemon posted a profit of $56.5 million, or 39 cents a share, compared with $57.2 million, or 39 cents a share, a year earlier. Analysts’ average estimate expected 35 cents a share.

Net sales were up 21.9% to $344.5 million, ahead of analysts’ estimate for $343.9 million in sales. Comparable store sales increased 8%.

Revenue increases were primarily driven by new store openings, the comparable store sales increase and a 39.4% increase in direct-to-consumer sales to $49.4 million (about 14.3% of total sales)

Late Fall Deliveries Cut into Sales?

Gross margin, however, narrowed to 54% from 55.1% a year ago, primarily due to the drop in product margin over the debacle surrounding black Luon pants and increased inventory reserves. Offsetting the margin drop partially was a decline in occupancy and depreciation costs. Selling, general & administrative expenses increased 25% to $107 million.

Despite the positive second quarter results, Lululemon lowered its third quarter and full year forecast. Now Lululemon expects fiscal full year earnings between $1.94 to $1.97 a share, down from its previous forecast for $1.96 to $2.01 a share and below analysts’ consensus for $1.99 a share.

Full year sales are now estimated to come in between $1.625 billion to $1.635 billion vs. its prior guidance $1.645 billion to $1.665 billion.

The company also said its expects its selling, general & administrative expenses as a percentage of revenues to increase year over year due to lost sales resulting from late deliveries and increased investments.

Noting its third quarter is off to a soft start due to late delivery of fall merchandise, Lululemon also lowered its third quarter forecast. Now the retailer expects earnings between 39 to 41 cents a share on sales between $370 million and $375 million wit comparable store sales increasing in the mid single-digit range.

Analysts’ average estimate expects 44 cents a share in the third quarter.

“The company continues to hurt its perception on the Street with their guidance,” said Brian Sozzi, chief executive at Belus Capital Advisors. “The stock has moved up so much, and this is another time they disappointed on their guidance.”


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