Lululemon Cuts Profit Forecast on New Merchandise Delayed
Lululemon Athletica Inc. (LULU), the retailer that recalled shipments of yoga pants earlier this year for being too sheer, cut its annual profit forecast after delays in getting new merchandise restrained sales.
Earnings per share will be as much as $1.97, down from a previous projection of a maximum of $2.01, the Vancouver-based company said today in a statement. The average of 29 analysts’ estimates compiled by Bloomberg was $1.99.
Chief Financial Officer John Currie said on a conference call today that third-quarter sales were off to a slow start because the recall of the black Luon pants delayed the delivery of new apparel. The recall, announced in March, left Lululemon without one of its best-selling products and was followed by the departure of the company’s top product officer and the planned exit of Chief Executive Officer Christine Day.
“Over the past several months, we’ve focused on quality and getting Luon back into our stores,” Currie said on the call with analysts and investors. “While this is clearly what was important for our future, it resulted in some short-term pain.”
Full-year sales will be as much as $1.64 billion, down from a previous projection of a maximum of $1.67 billion, Lululemon said. The average of 27 estimates compiled by Bloomberg was $1.67 billion.
Lululemon fell 5.4 percent to $65.29 at the close in New York, the biggest drop since June 11. The shares have declined 14 percent this year, compared with an 18 percent gain for the Standard & Poor’s 500 Index.
Day, who said in June that she’ll leave the company when a replacement is found, has been moving beyond yoga as competitors including Gap Inc. (GPS) and Macy’s Inc. (M) boost their assortments of products in Lululemon’s core market. Consumers also have been pulling back on non-essential purchases, causing retailers from Macy’s to Wal-Mart Stores Inc. to cut their profit forecasts for the year.
“The guidance obviously disappointed,” Anna Andreeva, a New York-based analyst at Oppenheimer & Co., said today in an interview. “People are trying to figure out how much of this is macro and how much of this is company-specific.”
She rates the shares market perform, the equivalent of a hold.
Net income for the second quarter ended Aug. 4 fell 1.3 percent to $56.5 million, or 39 cents per share, from $57.2 million, or 39 cents, a year earlier, Lululemon said. Analysts projected 35 cents, the average of 28 estimates compiled by Bloomberg.
The retailer said sales at stores open at least 12 months increased 8 percent in the second quarter. Lululemon projects same-store sales to increase at a mid single-digit percentage rate in the third quarter. Earnings per share will be as much as 41 cents. That trails analysts’ 44-cent average estimate, according to data compiled by Bloomberg.
Lululemon today also announced a partnership with Noble Biomaterials, giving the retailer exclusive access to the company’s antimicrobial technology in its apparel to prevent odor in its garments.
Lululemon has been a retailing phenomenon since its founding in 1998 as it used free yoga classes and local brand “ambassadors” to help amass a cult-like following in the U.S. and Canada. Those customers have proven willing to shell out about $60 for tank tops and $90 for stretchy pants that are meant to be as fashionable on the street as they are comfortable in the yoga studio.
The rapid growth of recent years has drawn rivals into a yoga market Lululemon once had largely to itself.
This week, Macy’s said it will expand its athletic apparel offerings to attract younger customers. Gap’s Athleta mirrors Lululemon, linking with local yoga instructors, sponsoring classes and training staff to make recommendations tailored to customers’ interests.
Lululemon now is moving into menswear and clothing for other sports as well as opening stores internationally. That expansion will bring the retailer into competition with entrenched rivals such as Nike Inc. (NKE) and Adidas AG (ADS), which offer lower prices and sponsor high-profile athletes. Lululemon men’s short-sleeve running t-shirts start at $58, while at Under Armour Inc. (UA), they cost as little as $25 and at Nike they start at $38.
Currie said in June that his company, which has 25 stores in Australia and New Zealand plus a handful of showrooms elsewhere, eventually can have about as many stores internationally as it does in North America. The company had 192 stores in the U.S. and Canada as of May 5.
Another of the new CEO’s goals will be to find new customers at home. To that end, the company has been adding apparel for golf and tennis to its stores and plans to introduce its first standalone men’s store by 2016.
The chain has been partnering with U.S. athletic events to help build a higher profile among American men. The Olympic men’s beach volleyball team wore Lululemon uniforms, and the yoga-wear maker supplanted Under Armour as the supplier of uniforms for the Wall Street Decathlon.
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