Lululemon Sales Beat Estimates as New Items Draw Customers

Lululemon Athletica Inc. posted first-quarter sales that topped analysts’ estimates, helped by new products like an expanded selection of women’s tops.

Sales rose 17 percent to $495.5 million in the quarter ended May 1, the Vancouver-based company said in a statement Wednesday. Analysts projected $487.6 million, on average.

The results signal that Lululemon’s new merchandise is gaining traction. The yogawear retailer has been adding more innovative pants and fabrics to appeal both to hardcore athletes and casual buyers. Chief Executive Officer Laurent Potdevin also has focused on efficiency to improve results. Those efforts helped Lululemon report a gross margin of 48.3 percent in the quarter, wider than the 47 percent analysts had estimated.

“In terms of the key metrics we were looking for in the quarter, we got everything we wanted, and then some,” Howard Tubin, an analyst at Guggenheim Securities, said in a note. “Lululemon’s merchandise assortment is resonating with shoppers.”

The shares rose 1.6 percent to $69.26 at 10:45 a.m. in New York. Lululemon already had gained 30 percent this year through Tuesday.

However, challenges remain. Lululemon is facing increased competition from upstart brands as well as larger rivals like Nike Inc. and Under Armour Inc. The larger retail environment also has been turbulent as consumers restrain spending amid an uncertain economy.

Profit Miss

Lululemon’s first-quarter profit was 30 cents a share, excluding some items. That missed analysts’ 31-cent average projection. The company forecast that second-quarter profit will be 36 cents to 38 cents. Analysts estimated 39 cents, on average.

The retailer also is fending off criticism from its founder, Chip Wilson, who says the company lacks a clear strategy. In an open letter to investors last week, he slammed the chain for losing ground to competitors like Nike and Under Armour. Wilson said he remains the largest Lululemon owner, with a stake of almost 14.2 percent.

Lululemon responded that it has posted a “strong operational performance” and that it is focused on customers.

Sales Growth

Shoppers are responding to the company’s efforts. Sales at established locations and its e-commerce site rose 8 percent last quarter, excluding currency fluctuations. That exceeded the 6.7 percent gain analysts had estimated, according to Consensus Metrix. 

The results underscore the brand’s ability to entice shoppers without discounts, setting it apart from mall-based competitors that are slashing prices to drive sales, said Simeon Siegel, an analyst at Nomura Securities.

“In the current retail environment, with all the challenges faced by everyone, comparable sales growth with better-than-expected gross margins is something that’s hard to discount,” Siegel said. “That’s in retail, that’s in apparel, that’s in athletic -- those are three categories that are struggling right now and speaks to the brand equity.”

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