LULULEMON: INVENTORY LEVEL WORRIES ANALYSTS

Revenues for the current quarter are expected to come in below analysts’ expectations

Lululemon Athletica Inc., which struggled to keep enough products on its shelves last year, said Thursday it now has notably more yoga wear than it can sell.

The Vancouver- based company, best known for its yogainspired athletic fashions, said the value of its inventory increased by 67 per cent over the same time last year, while also disclosing a disappointing outlook for the rest of 2012.

The combination appeared to alarm investors, which sent shares of the company down after the report, falling 8.8 per cent on the Toronto Stock Exchange.

“It really seems like people are more concerned with the forward outlook,” analyst Jamie Katz from Morningstar said.

“The second- quarter seems to be more the problem than the back half of the year.”

Lululemon is projecting that net revenue will come in the range of $ 273 million to $ 278 million for the quarter which runs to the end of July, below the $ 289.8 million projected by analysts, according to Thomson Reuters.

For the year, the company’s outlook also fell short of what analysts were expecting.

Lululemon predicted just over $ 1.3 billion US of revenue and earnings of between $ 1.55 and $ 1.60 per share — at least three cents per share below expectations.

Chief executive Christine Day said the company’s fundamentals remain strong.

“We are exactly where we want to be, balancing our longterm growth, innovation and execution,” Day told a conference call.

A household name in Canada, Lululemon has been growing in popularity in the United States and Australia, where the company continues to open new stores.

While other specialty clothing retailers have struggled in the tough economy, Lululemon has consistently boosted quarterly profits and revenues.

Last year, the company began an initiative to boost its inventories to meet the growing demand of shoppers and appease those who were confident the company could grow faster.

The challenge has been for Lululemon to reach a fine balance between having too much inventory on shelves and having too little.

In the quarter ended April 29, the company’s total inventory which was pegged at $ 107.7 million US at the end of the three- month period compared with $ 64.4 million a year earlier.

The increase came as Lululemon reported improved firstquarter earnings of $ 46.6 million US or 32 cents per diluted share — two cents ahead of the average estimate.

The results were up 40 per cent from $ 33.4 million or 23 cents per share a year ago. Lululemon’s revenue rose to $ 285.7 million US — a 53 per cent increase from $ 186.8 million US a year earlier.

Lululemon was the fastest growing brand in 2012, according to a marketing study released Wednesday by brand experts Interbrand.

The brand value has increased 292 per cent to $ 3.24 billion, which moved it up to the seventh spot for 2012 from 17th spot in 2010.

Lululemon opened its first store in 1998 in Vancouver and has expanded to 151 stores in the past decade.