Lower outlook spooks Lululemon shareholders
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 US$45.31 on the Nasdaq, down US$6.85 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 fullyear revenue estimate to between US$2.025 billion and US$2.040 billion, which reduced the top end of its earlier estimate by $15 million. It also shaved its full-year earnings estimate to between US$1.81 and US$1.84 per share, down from US$1.87 to US$1.92.
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 US$53.2 million, or US38 cents per share, compared with net earnings of US$60.5 million (US42 cents) in the same period a year ago.
Revenue climbed 14.4 per cent to US$479.7 million from US$419.4 million last year as the company, which has 354 locations globally and has been ramping up its international expansion efforts over the last year, opened 18 new outlets in the quarter.
Comparable store sales, which strip out the effects of growth from new store openings, rose six per cent in the quarter on a constantdollar basis. That was thanks in part to solid sales in women’s pants, bras and the men’s line — a “fantastic response,” Potdevin said, with a 27 per cent boost in sales at stores open for more than a year of its core product of women’s pants. Men’s line sales jumped 24 per cent, due mainly to its diversified product assortment in sweats, “the anchor of the men’s business.”
Lululemon’s cost of goods during the third quarter rose 22.4 per cent to US$254.9 million compared with last year, and selling, general and administration expenses rose 20.5 per cent to US$156.6 million.