Lululemon warns of ‘slow start’ to 2017

Lululemon Athletica Inc. saw its revenue jump 12 per cent in the fourth quarter, which included a robust holiday selling season, but executives warned of a “slow start” to 2017.

The slowdown most acutely affected e-commerce, chief executive Laurent Potdevin told a conference call with analysts Wednesday as the Vancouver-based retailer’s shares plunged almost 20 per cent in after-market trading. “We have clearly identified the issues: an assortment lacking depth in colour for spring, compounded with visual merchandising that did not powerfully translate our design vision,” the CEO said. “We will see more colour in selected styles as early as next week.”

He said Lululemon is also launching a new mobile app, adding more products to its online assortment and improving its online merchandising.

Lululemon has been under pressure amid industry concern that “athleisure,” the trend it helped spawn, has peaked. Rivals Nike and Under Armour are also under pressure after mixed earnings reports.

Canadian sales of athleisure have grown by an average of seven per cent per year since 2010 to an estimated $4-billion market in 2016, up from $2.7 billion six years ago, according to market research firm NPD Group. But the market has become diluted and growth has slowed with the entry into the field of mass retailers such as Walmart, Old Navy, H&M and Joe Fresh.

The athleticwear company is aiming to boost sales in 2017 by introducing more innovative clothing styles and expanding its men’s’ business as it takes a more cautious view of store traffic and performance, given the broad upward trajectory in consumer online shopping.

Lululemon reported higher earnings Wednesday but missed average analyst estimates by a penny, with profit rising to US99 cents per share, or US$136.1 million in the period ended Jan. 29, compared with earnings of US85 cents (US$117.4 million) in the same period of 2015. Adjusted earnings were US$1.

Analysts were anticipating earnings of US$1.01 and revenue of US$783.56 million in the fourth quarter, according to Thomson Reuters. For the fiscal 2016, revenue rose 14 per cent to US$2.3 billion from US$2.1 billion in fiscal 2015.

Potdevin said Lululemon is sticking to its goal of reaching US$4 billion in sales by 2020, more than double its earnings and deriving 20 per cent to 25 per cent of overall sales from outside the U.S.

In 2017, the company’s key international growth target is China, Potdevin said. Lululemon is opening up to 50 stores next year, including about 15 locations outside of North America.