Lululemon Projects Soft Holiday Quarter

By Chelsey Dulaney 

Lululemon Athletica Inc. on Thursday gave a disappointing outlook for its holiday quarter, citing delays at West Coast ports, a weak Canadian dollar and delayed store openings.

The yoga gear-maker said it expects to post earnings of 65 cents to 69 cents a share for the current quarter, along with revenue of $570 million to $585 million. Analysts had been expecting earnings of 72 cents a share on revenue of $593.5 million.

Shares of Lululemon fell 2% in premarket trading, despite the company reporting earnings in its November quarter that topped expectations.

Analysts say Vancouver, Canada-based Lululemon is beginning to turn a corner after more than a year of setbacks stemming from a recall that dented its reputation and cost it tens of millions of dollars. The recall was followed by a shift in consumer tastes toward more elaborate designs over basics that caught Lululemon flat-footed as it struggled to improve quality and quell infighting on its board and high executive turnover.

The retailer has revamped its product line to include more embellished and patterned items now fashionable among its customer base as it pushes back against competition from lower-priced rivals like Gap Inc.'s Athleta brand. The new approach, however, has increased lead times and depressed margins, as printed fabric is more expensive to produce than basic black or gray.

For the period ended Nov. 2, margins continue to erode, narrowing to 50.3% from 53.9% a year earlier.

Overall, Lululemon posted a profit of $60.5 million, or 42 cents a share, compared with $66.1 million, or 45 cents a share, a year earlier. The company had previously said it expected earnings of 36 cents to 38 cents a share.

Revenue increased 10% to $419.4 million, coming in just below the company's projection for $420 million to $425 million in revenue.

A 27% surge in direct-to-consumer revenue in the quarter was offset by a 3% drop in same-store sales, excluding currency fluctuations.

In October, Lululemon launched an online-only warehouse sale in the U.S., selling items including tops and bottoms at a steep discount, after reporting an inventory buildup in June. Analysts had pointed to the sale as a driver of direct-to-consumer growth in the quarter.

Overall, Lululemon's comparable sales increased 3% in the quarter.

At the end of the quarter, Lululemon's inventory totaled $229.9 million, up from $209.1 million a year earlier.

The retailer also bumped up its full-year adjusted earnings guidance to $1.74 to $1.78, from its previous projections of $1.72 to $1.77 a share. The company lowered its revenue guidance to a range of $1.77 billion to $1.78 billion, compared with $1.78 billion to $1.8 billion.

Write to Chelsey Dulaney at [e-mail]

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