Lululemon Gains the Most in Six Months as Sales Begin to Recover

Updated on
  • Athleisure retailer boosts 2017 adjusted earnings guidance
  • Sales fell less than expected last quarter after rough start

Lululemon Athletica Inc. kicked off its biggest rally in almost six months after pulling out of a slump and announcing plans to revamp its line of girls’ apparel.

After slow sales spooked investors earlier this year -- a problem that Chief Executive Officer Laurent Potdevin blamed on poor web traffic and a dull product assortment -- the company posted first-quarter earnings that topped analysts’ estimates.

The improving results suggest that Lululemon is coping with a more crowded market for yoga pants and other forms of athleisure -- the increasingly popular category that combines workout attire with casual wear.

“I’m excited to see the positive trends that materialized late in Q1 continuing into Q2,” Potdevin said in a statement.

The shares rose as much as 17 percent to $56.85, the biggest intraday gain since Dec. 8. They had fallen 25 percent this year before Thursday’s close.

Comparable-store sales, a closely watched metric, fell 2 percent in the quarter ending April 30 -- less than the 3.4 percent decline forecast by Consensus Metrix. E-commerce revenue was flat, the company said.

First-quarter earnings amounted to 32 cents a share, excluding costs related to the restructure of its Ivivva children’s brand. That beat the 28 cents projected by analysts. The company also raised its fiscal 2017 forecast for profit while trimming its forecast for revenue.

Closing Stores

The retailer plans to close 40 of its 55 Ivivva stores while converting half of those that remain to Lululemon-branded stores. Ivivva will become “a primarily e-commerce focused business.”

Lululemon sees fiscal 2017 profit of $2.28 to $2.38 a share when excluding the cost of Ivivva’s restructuring, up 2 cents from their previous forecast. Including Ivivva-related costs, net income is seen at $1.97 to $2.07.

First-quarter sales rose 5 percent to $520.3 million, compared with the $513.7 million analysts predicted. The retailer trimmed the full fiscal year forecast to $2.53 billion to $2.58 billion from $2.55 billion to $2.6 billion.

Lululemon is trying to attract more male customers and expand its presence overseas while competitors increase their reliance on discounts. The company’s website suffered a lengthy outage last month, a setback for a brand that’s been working on its online performance. The Vancouver-based company counts on direct-to-consumer sales for about 17 percent of revenue, Macquarie analyst Laurent Vasilescu estimates.

Lululemon is also in advanced talks to lease 8,000 square feet (743 square meters) of space on Manhattan’s Fifth Avenue, according to people with knowledge of the matter. The store was vacated in March by Sephora, which has moved to another location on the east side of Fifth Avenue.

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