Lower outlook spooks Lululemon shareholders

Executive promises fail to reassure investors

Worries about Lululemon are dragging on the retailer’s shares after the athleticwear company cut its revenue and profit expectations for the fiscal year and profit fell in the third quarter.

Though chief executive Laurent Potdevin said quarterly results released Wednesday were in line with the company’s expectations and promised the retailer will reap benefits from supply-chain improvements and a renewed focus on design, nervous investors pushed the retailer’s shares down more than 13 per cent. It closed at $45.31 US on the Nasdaq, down $6.85 US on the day.

“We saw lower traffic in the final weeks of the third quarter and into the first couple of weeks of the fourth quarter,” but there had been a steady improvement since U.S. Thanksgiving, Potdevin told investors during a conference call. “Given the current environment, we are taking a conservative stance with revenue in the fourth quarter while taking the necessary actions to manage inventory and control expenses.”

Lululemon lowered its full-year revenue estimate to between $2.025 billion and $2.040 billion US, which reduced the top end of its earlier estimate by $15 million. It also shaved its full-year earnings estimate to between $1.81 and $1.84 US per share, down from $1.87 to $1.92 US.

Despite the trimmed estimates, “this year of investment in our product engine and supply chain remains very much on track,” Potdevin said.

“We’re now seeing sequential improvement in product margin and remain focused and confident in our goals.”

In the third quarter, Lululemon was saddled with higher costs and expenses, and profit dropped despite a 14 per cent jump in revenue. Earnings in the period ended Nov. 1 were $53.2 million US, or 38 cents US per share, compared with net earnings of $60.5 million US (42 cents US) in the same period a year ago. The negative impact of foreign currency amounted to three cents per share.

Revenue climbed 14.4 per cent to $479.7 million from $419.4 million US last year.

TYLER ANDERSON/NATIONAL POST FILES Lululemon was saddled with higher costs and expenses in the third quarter, even as the athleticwear firm vowed to reap benefits from supply chain improvements and a new focus on design. Revenue, however, climbed 14.4 per cent from last year.