Lu­l­ule­mon plunges af­ter CEO crit­i­cizes bland prod­ucts

Yo­gawear com­pany hits eight-year-low

National Post (National Edition) - - FINANCIAL POST - LIND­SEY RUPP

plum­meted the most in more than eight years af­ter the yo­gawear com­pany of­fered a bleak fore­cast for the year, spark­ing con­cern that prod­uct mis­fires are caus­ing cus­tomers to flee the brand.

The re­tailer said late Wed­nes­day that earn­ings will be $2.26 to $2.36 a share this year — well be­low the $2.56 pro­jected by an­a­lysts. Lu­l­ule­mon's rev­enue fore­cast also came in light of pre­dic­tions.

Chief ex­ec­u­tive Lau­rent Pot­devin said that weak ecom­merce sales and a bland prod­uct line con­trib­uted to a “slow start” this year. Specif­i­cally, a lack of colour in its ap­parel turned off shop­pers, he said. The Van­cou­ver­based com­pany has been hit by an in­dus­try­wide dis­count­ing frenzy and mount­ing com­pe­ti­tion in ath­letic ap­parel, as well as slug­gish foot traf­fic at many North Amer­i­can malls.

The stock de­clined more than 23 per cent to $50.60 in New York af­ter the re­sults were re­leased, the big­gest in­tra­day drop since De­cem­ber 2008.

Lu­l­ule­mon had gained two per cent this year through the close of trad­ing Wed­nes­day.

The broader con­cern is that cus­tomers were so quick to aban­don the Lu­l­ule­mon brand, said Camilo Lyon, an an­a­lyst at Canac­cord Ge­nu­ity Inc. who rec­om­mends sell­ing the stock.

“We see a larger is­sue brewing,” Lyon said in a re­port Thurs­day. “Pric­ing, com­pe­ti­tion and/or fash­ion al­ter­na­tives were a strong enough force to drive the con­sumer away, and thus will make it that much more dif­fi­cult to re­cap­ture her.” Lu­l­ule­mon stocks dropped by 23 per cent in New York af­ter the re­tailer fore­cast earn­ings will be $2.26 to $2.36 per share this year, be­low ex­pec­ta­tions of $2.56.

Paul Le­juez, an an­a­lyst for Cit­i­group Inc., was one of sev­eral an­a­lysts that down­graded the stock af­ter the fore­cast was re­leased. He low­ered his rat­ing to neu­tral from a buy rec­om­men­da­tion on Thurs­day.

Lu­l­ule­mon still “has sig­nif­i­cant room to grow the brand,” he said in a re­port. “How­ever, the path to longterm growth is not as vis­i­ble against the back­drop of the cur­rent weak­ness.”

Lu­l­ule­mon's woes ex­tend a pun­ish­ing year for ath­letic brands. shares suf­fered their own rout last week af­ter sales missed es­ti­mates, hurt by pres­sure from and

mean­while, saw its stock tum­ble as well af­ter giv­ing a weak out­look ear­lier this month.

Gan­der Moun­tain Co., a chain of hunt­ing and fish­ing shops, and Per­for­mance Sports Group Ltd., which sells skates, bats and other equip­ment, both have filed for bank­ruptcy in re­cent months. Per­for­mance won court ap­proval in Fe­bru­ary to sell al­most all its as­sets, in­clud­ing its Bauer hockey and Eas­ton base­ball di­vi­sions.

At Lu­l­ule­mon, rev­enue is ex­pected to be US$2.55 bil­lion to US$2.6 bil­lion this year. An­a­lysts had es­ti­mated US$2.62 bil­lion. That out­look dis­ap­pointed in­vestors af­ter a fairly strong hol­i­day sea­son. Same-store sales grew seven per cent in the fourth quar­ter, bet­ter than the 5.3 per cent av­er­age es­ti­mate com­piled by Con­sen­sus Metrix.

Sales on that ba­sis will be down in the low sin­gle dig­its dur­ing the first quar­ter, Lu­l­ule­mon said. Still, the com­pany ex­pects them to grow in the low sin­gle dig­its over the full year.

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