Lululemon Cuts Outlook as Q1 Profit Plummets

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lululemonVancouver–The founder and biggest shareholder in Lululemon Athletica has criticized the company’s board, just hours before the yogawear retailer revealed a slump in first quarter profit and lowered its earnings guidance.

The retailer had earlier been forced to hit back at claims by Chip Wilson that the company’s board is “heavily weighted towards short-term results at the expense of product, culture and brand and longer-term corporate goals.” However, he did praise the new management team.

‘A Transitional Year’

In response, the board said its members are “aligned with the company’s core values and possess the necessary expertise to successfully lead Lululemon forward.

“By leveraging its design-led roots, strengthening its supply chain and providing an exceptional guest experience, we are confident that Lululemon, under new CEO Laurent Potdevin’s leadership, will provide guests with the high-quality, technical products they know and love and create value for shareholders,” a statement said.

The comments came ahead of the company’s first-quarter results, in which net income slumped by nearly two-thirds to $18.98 million from $47.28 million in the three months to 4 May.

But net revenue jumped 11% to $384.6 million, while comparable sales increased 1%. And gross profit rose 15% to $195.7 million, after last year’s results were hit by $17.5 million in write-offs related to the recall of Luon yoga pants that were too sheer.

“2014 is very much a transitional year for Lululemon, and we are on track with the improvements we have set out to achieve,” Potdevin said.

Looking ahead, second quarter revenues are now seen in the range of $375 million to $380 million based on a total combined comparable sales decrease in the low to mid single digits. Earnings per share are expected to be in the range of $0.28 to $0.30 for the quarter.

For the full fiscal 2014, net revenue is forecast to range from $1.77 billion to $1.8 billion based on a comparable sales increase in the low single digits. Diluted earnings per share are seen in the range of $1.50 to $1.55 for the full year.

Lack of Innovative Product?

Analyst Howard Tubin at RBC Capital Markets attributes the soft comp expectations for the second quarter to two factors: the overall sluggish retail environment, and the lack of enough new and innovative product in stores to drive traffic and purchase.

“We continue to believe that more and more new merchandise will flow into stores as the year progresses,” he says. “Based on lead times, the new head of product, Tara Poseley, will have the most significant impact on the business during the upcoming fall season.”

Separately, Lululemon said its chief financial officer John Currie is to retire by the end of the fiscal year, and that a search for his successor is underway.

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