Lululemon Profit Tops Expectations as Shares Jump

Friday, 10 Jun 2011 10:39 AM

 

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Yoga- and leisure-wear retailer Lululemon reported better than expected quarterly results Friday as online and in-store sales rose, sending its shares up more than 7 percent.

It also forecast stronger than expected second-quarter and full-year earnings.

Lululemon shares were up 5.94 percent at C$88.88 in Toronto and up 5.84 percent at $91.17 in New York.

The Vancouver-based company warned last quarter that strong demand had crimped inventories, which could limit first-quarter growth. Instead, earnings per share came in 8 cents higher than analysts had forecast.

"I'm not surprised that they had a great quarter because our checks had been very, very positive," said Jennifer Milan, an analyst at Sterne, Agee & Leach. "But I was surprised at the level of the beat, given the fact that they've had inventory constraints for much of the quarter."

Inventories hit a low point toward the end of February and were back to higher levels in April, Chief Financial Officer John Currie said in a call with analysts.

Comparable stores sales rose 16 percent in the first quarter. Currie said that if inventories had been bigger the number would have been closer to 20 percent.

Part of the beat was also likely due to low markdown levels during the quarter, Tracy Kogan, an analyst at Nomura Securities International, said in a note to clients.

Net income in the fiscal first quarter ended May 1 rose to $33.4 million, or 46 cents a share, up from a year-earlier profit of $19.6 million, or 27 cents a share.

Analysts on average had forecast earnings of 38 cents a share, according to Thomson Reuters I/B/E/S.

Gross profit for the quarter increased by 48 percent.

"While cautious about the macro-environment, we remain confident that our business momentum will continue," said Chief Executive Christine Day.

The company forecast second-quarter earnings of 42 cents to 44 cents a share on revenues of $200 million to $205 million. For the full-year it forecast earnings of $2.10 to $2.16 a share, on revenue of $915 million to $930 million.

Analysts on average have forecast second-quarter earnings of 40 cents a share and full-year earnings of $2.04 a share.

Lululemon has carved out a lucrative niche market and has become one of the few Canadian retailers that has successfully entered the U.S. market.

"This is a very, very early-stage growth company," Milan said. "They have extreme brand loyalty and given the fact that they've been inventory constrained, I don't think that we've really seen what true demand is for this company yet."

Lululemon operates about 140 stores in Canada, the United States and Australia, not including community-oriented showrooms that offer fitness classes and incorporate local events.

Earlier this week, Lululemon shareholders approved a plan to split its stock on a two-for-one basis.

© 2014 Thomson/Reuters. All rights reserved.

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