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Lululemon bounces back after too-sheer-pants debacle

By
Reuters
Published Sep. 11, 2014, 9:32 a.m. ET

A jump in online sales helped yogawear chain Lululemon Athletica report a higher-than-expected quarterly profit and increase its full-year earnings forecast on Thursday, sending its stock higher and reversing some damage from a high-profile recall last year.

Shares of the one-time investor darling jumped 14 percent in pre-market trading. Prior to the latest move, its shares had fallen more than 40 percent in the last 18 months following an embarrassing recall of yoga pants deemed too see-through.

Since then, the Canadian company has worked to improve quality and supply-chain issues. It has also faced increased competition, addressed executive departures, fought lawsuits and sought to soothe disgruntled customers after controversial comments by founder Chip Wilson.

“We are pleased to be on track with the implementation of our strategic road map, and are starting to see the results,” Chief Executive Laurent Potdevin said in a statement.

The company said 2014 was a transitional year. It had previously indicated it would take until 2015 to smooth out its supply chain operations.

The Vancouver, British Columbia-based company said its gross profits in the second quarter rose 6 percent. Net revenue rose 13 percent on the back of strong online sales, sending its shares up to $43.75 on the Nasdaq before the morning bell on Thursday.

The company, which cut its expectations in June, marginally raised its full-year earnings forecast.

Lululemon’s latest results suggest it has put the too-sheer-pants (seen above) debacle behind it.Daniel Shapiro

Lululemon, which operates 270 stores, said it now expected full-year adjusted earnings of $1.72 to $1.77 per share, up from $1.71 to $1.76. The company also increased the lower end of its revenue forecast to $1.78 billion from $1.77 billion.

Analysts on average were expecting full-year earnings of $1.74 per share on revenue of $1.78 billion, according to Thomson Reuters I/B/E/S.

“The market likes it, but I think when you drill into this quarter you’re still left with the impression that the company’s battling tons of competitive threats,” said Brian Sozzi, chief executive of research firm Belus Capital Advisors, adding he was concerned by a decline in product margin.

Under Armor, Nike, and Gap’s Athleta retail banner have all expanded into the yoga gear market, a space Lululemon largely created, with lower-priced products, while smaller, trendy, niche rivals have also emerged.

Total comparable sales, which includes comparable store sales and online sales, remained flat during the quarter on a constant-dollar basis. Comparable store sales decreased 5 percent, however, as traffic fell.

Online sales revenue rose 30 percent in the quarter.

The company’s net income fell to $48.7 million, or 33 cents per share, in the second quarter ended Aug. 3, from $56.5 million, or 39 cents per share, a year earlier. Revenue was $390.7 million.

Analysts on average had expected earnings of 29 cents per share on revenue of $376.8 million.