Lululemon Q1 Profit Leaps 40%, But Gives Conservative Outlook

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Vancouver—Lululemon reported today that its first quarter profit leaped 40%, but the trendy yoga wear retailer forecast a tepid outlook for the rest of the year.

For the quarter ended April 29, lulelemon posted net income of $46.6 million, or 32 cents a share, up from $33.4 million, or 23 cents a year earlier.

Net revenue leaped 52.9% to $285.7 million with comparable store sales up 25%. Direct to consumer sales, which comprised 13.5% of sales, grew 179% to $38.4 million.

The results surpassed analysts’ average estimate for a profit of 30 cents a share on sales of $271 million.

“Our strategy to increase inventory levels led to strong revenue growth and earnings performance in the first quarter as our guests responded well to our spring styles and colors,” said Christine Day, lululemon’s ceo.

Gross profit narrowed to 55%, from 58.7 percent a year ago, hurt in part by higher labor and raw materials costs and more markdowns.

Experiencing ‘Growing Pains’?

John Currie, chief financial officer, said in a conference call with analysts that a 45.1% increase in selling, general and administrative expenses was due in part to higher store labor and operating costs, and higher costs in store “support centers,” including salaries.

Lululemon, which has been a phenomenal success in Canada, is expanding into the United States and internationally. The company ended the quarter with 180 stores in North America Australia and New Zealand.

Despite its enviable position, lululemon disappointed retail analysts with its forecasts.

For its second quarter, the company expects net sales between $273 million to $278 million with earnings in the range of 28 to 30 cents a share. That’s just below analysts’ estimates of $290 million in sales and earnings of 33 cents a share.

In a revised forecast for its full year earnings, lululemon now expects sales between $1.32 billion to $1.34 billion with earnings between $1.55 to $1.60, compared with its previous forecast for sales of $1.3 to $1.325 billion and earnings of $1.50 to $1.57.

Analysts’ consensus calls for full year earnings of $1.63 on sales of $1.35 billion.

“It’s just another typical Lululemon release, where good is not going to be good enough,” said Brian Sozzi, chief equities analyst at NBG Productions.

Although Sozzi said the forecast was a bit disappointing, he noted that the company typically gives conservative projections. Still Sozzi said the narrowed margins and inventory growth outpaced same store sales, signs of “growing pains.”


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