Lululemon Q3 Earnings Up, But Warns of Flat Holiday Comps

In Reports, What's New, Industry News by Jeff Prine

lululemonVancouver—Lululemon Athletica Inc. today reported a 20% increase in its third quarter profit but warned that its fourth quarter comp sales would likely be flat further affecting its full year results.

For the quarter ended Nov. 3, the yoga and fitness retailer posted net income of $66.1 million, or 45 cents a share, compared with income of $57.3 million, or 39 cents, in the same period a year ago. Analysts’ average estimate expected 41 cents a share.

Net revenue rose 20% to $379.9 million ahead of analysts’ estimate for $376.2 million.

Comparable store sales were up 5%. Its direct to consumer, which accounts for 16.3% of total, was up 37% to $62 million.

Gross profit increased 17% to $204.6 million, and gross revenue narrowed to to 53.9% from 55.4% last year.

‘A lot of PR Issues This Year’

Christine Day, the outgoing chief executive who is being replaced by Laurent Potdevin next year, said the third quarter results were in line with company expectations. Day helmed the company during one of its most rocky points this year when the retailer has to take back one of its bestselling items, yoga pants, that were defective and see-through. Then Chairman/Founder Chip Wilson angered some customers when he said in a recent television interview that some women’s bodies “just don’t actually work” for Lululemon pants. Wilson also has stepped down.

“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, I believe that the investments we are making in the business combined with the team in place create a strong platform for growth in the years ahead,” Day added.

The retailer’s fourth quarter forecast, however, was below analysts and the company’s shares were down as a result today in early trading.

For its holiday quarter, Lululemon predicted a profit of 78 cents to 80 cents a share, below the 84 cents a share analysts projected.

For its full year forecast, Lululemon now expects net revenue to be between $1.605 billion and $1.610 billion, down from an already lowered forecast of $1.625 billion to $1.635 billion and earnings at $1.94 to $1.96 a share.

Speaking to analysts on a conference call, John Currie, chief financial officer, was asked about the yoga pants and other gaffes this year and how they have affected results.

“I’m not saying we can see a one-to-one correlation but you know, let’s face it, we’ve had a lot of PR issues this year, whether it’s the Luon (yoga pants) pull-back or Christine’s resignation, and there is undoubtedly some impact on traffic and therefore on the business,” Currie said. “Our job is to make sure that’s a short-term impact by earning back the trust of the guest.”

Currie also revealed that Lululemon Lululemon is conducting a brand perception survey, but results are pending.

“The guidance—it’s clearly a source of concern. Flat comps suggest there’s been a change in consumer demand for the product,” said Christian Buss, an analyst with Credit-Suisse.


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