Lululemon profit trails analysts’ estimates

Sluggish sales hurt retailer as unseasonably warm weather, competition force discounts

Yogawear retailer Lululemon Athletica Inc. reported third-quarter profit that missed analysts’ estimates as sluggish sales force the retailer to cut prices on more items.

Profit in the quarter ended Nov. 1 was 35 cents a share, the Vancouverbased company said in a statement Wednesday. Analysts estimated 37 cents.

Sales rose 14 per cent to $479.7 million, also trailing analysts’ average projection.

The results show increased competition from rivals such as Nike Inc. and Under Armour Inc. — as well as unseasonably warm weather — and have Lululemon struggling to clear out a glut of seasonal products. The company’s gross margin — or the percentage of sales left after subtracting the cost of goods sold — narrowed to 46.9 per cent from 50.3 per cent, indicating Lululemon is resorting to steeper discounts to move merchandise.

“Nike is improving their apparel offerings, Under Armour is improving as well, and there are a lot of small, niche brands,” said Camilo Lyon, an analyst at Canaccord Genuity Inc. Lululemon has “some seasonal aspects to their business, but it doesn’t need to be 20 degrees and snowing for their business to operate well.”

More price-slashing may be necessary for the fourth quarter. Lululemon’s inventory swelled 56 per cent from a year earlier to $357.8 million. That increase was more than three times the pace of its sales gain.

Lululemon said fourth-quarter profit would be 75 cents to 78 cents a share, trailing analysts’ average estimate of 86 cents.

Lululemon fell13 per cent to $45.32 at the close in New York, the biggest decline since Sept. 10.

The shares have slid 19 per cent this year.

Chief executive officer Laurent Potdevin is trying to cope with the increasingly crowded North American athletic-apparel market by expanding internationally.