By Chelsey Dulaney
Lululemon Athletica Inc. reported earnings in its November
quarter that topped expectations as direct-to-consumer sales
surged, though the yoga gear-maker gave a disappointing outlook for
the holiday quarter.
"Our third-quarter results demonstrated sequential improvements
as the quarter progressed, with all key facets of our business -
brand, guest experience, and product - contributing to our
momentum," said Chief Executive Laurent Potdevin in a news
release.
Shares surged 11% to $51.64 in early trading but are still off
about 12% so far this year.
The retailer warned, though, that West Coast port delays, a
lower Canadian dollar and delayed store openings would weigh on its
near-term results, echoing concerns from other apparel retailers,
including Ann Inc. and New York & Co., that have blamed
shipping snafus caused by problems at two major ports for their
weaker-than-expected results.
The retailer 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.
Analysts had said Vancouver, Canada-based Lululemon was
beginning to turn a corner after more than a year of setbacks
stemming from a recall of some yoga pants for being too sheer. The
recall, which dented its reputation and cost it tens of millions of
dollars, 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.
Lululemon 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 narrowed to 50.3% from
53.9% a year earlier, as inventory grew 9.9% from the prior
year.
Inventory pile-up has been a problem for Lululemon in recent
quarters as it has struggled to strike the right balance of
seasonal and core merchandise.
Overall, Lululemon posted a profit of $60.5 million, or 42 cents
a share, down from $66.1 million, or 45 cents a share, a year
earlier. The company previously had 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. Lululemon's comparable sales increased 3%, excluding
currently fluctuations.
A 27% surge in direct-to-consumer revenue in the quarter was
offset by a 3% drop in comparable sales, on a constant dollar
basis.
In October, Lululemon launched an online-only warehouse sale in
the U.S., selling items including tops and bottoms at a steep
discount. Analysts had pointed to the sale as a potential driver of
direct-to-consumer growth in the quarter.
The retailer also bumped up its earnings guidance for the year
to $1.74 to $1.78 a share, 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, from $1.78 billion to $1.8
billion.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com