Lululemon cuts profit forecast on delayed new merchandise

Bloomberg NewsSeptember 12, 2013 

— Lululemon Athletica, the retailer that recalled shipments of yoga pants earlier this year for being too sheer, cut its annual profit forecast after delays in getting new merchandise restrained sales.

Earnings per share will be as much as $1.97, down from a previous projection of a maximum of $2.01, the Vancouver-based company said Thursday in a statement. The average of 29 analysts’ estimates compiled by Bloomberg was $1.99.

Chief Financial Officer John Currie said on a conference call Thursday that third-quarter sales were off to a slow start because the recall of the black Luon pants delayed the delivery of new apparel. The recall, announced in March, left Lululemon without one of its best-selling products and was followed by the departure of the company’s top product officer and the planned exit of Chief Executive Officer Christine Day.

“Over the past several months, we’ve focused on quality and getting Luon back into our stores,” Currie said on the call with analysts and investors. “While this is clearly what was important for our future, it resulted in some short-term pain.”

Full-year sales will be as much as $1.64 billion, down from a previous projection of a maximum of $1.67 billion, Lululemon said. The average of 27 estimates compiled by Bloomberg was $1.67 billion.

Lululemon fell 5.4 percent to $65.29 at the close in New York, the biggest drop since June 11. The shares have declined 14 percent this year, compared with an 18 percent gain for the Standard & Poor’s 500 Index.

Day, who said in June that she’ll leave the company when a replacement is found, has been moving beyond yoga as competitors including Gap and Macy’s boost their assortments of products in Lululemon’s core market. Consumers also have been pulling back on non-essential purchases, causing retailers from Macy’s to Wal-Mart Stores to cut their profit forecasts for the year.

“The guidance obviously disappointed,” Anna Andreeva, a New York-based analyst at Oppenheimer & Co., said Thursday in an interview. “People are trying to figure out how much of this is macro and how much of this is company-specific.”

Net income for the second quarter ended Aug. 4 fell 1.3 percent to $56.5 million, or 39 cents per share, from $57.2 million, or 39 cents, a year earlier, Lululemon said. Analysts projected 35 cents, the average of 28 estimates compiled by Bloomberg.

The retailer said sales at stores open at least 12 months increased 8 percent in the second quarter. Lululemon has been a retailing phenomenon since its founding in 1998 as it used free yoga classes and local brand “ambassadors” to help amass a cult-like following in the U.S. and Canada. The rapid growth of recent years has drawn rivals into a yoga market Lululemon once had largely to itself.

This week, Macy’s said it will expand its athletic apparel offerings to attract younger customers. Gap’s Athleta mirrors Lululemon, linking with local yoga instructors, sponsoring classes and training staff to make recommendations tailored to customers’ interests.

Lululemon now is moving into menswear and clothing for other sports as well as opening stores internationally. That expansion will bring the retailer into competition with entrenched rivals such as Nike and Adidas, which offer lower prices and sponsor high-profile athletes.

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