Lululemon Stock Soars on Profit Increase, Outlook

Thursday, 09 Dec 2010 03:02 PM

 

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Net profit at Lululemon Athletica Inc., a Canadian yoga-wear retailer that has caught the eye of U.S. television host Oprah Winfrey, nearly doubled in the third quarter and the company said it sees more growth ahead.

Lululemon's shares soared as much as 20 percent after the release of the results, and were still trading up 18.17 percent, or C$10.19, at C$66.26 on the Toronto Stock Exchange Thursday afternoon. On Nasdaq, the stock was up 17.50 percent, or $9.75, at C$65.45. It was a top net gainer on both markets.

The company, whose $98 relaxed-fit pants were featured on Winfrey's annual "Favorite Things" program last month, has seen its shares rocket nearly 110 percent this year, including Thursday's jump.

For the quarter ended Oct. 31, Lululemon had net income of $25.7 million, or 36 cents a share, up from $14.1 million, or 20 cents a share, in the year-earlier quarter.

The results exceeded analysts' average estimate of 25 cents a share, according to Thomson Reuters I/B/E/S.

Cowen and Company analyst Laura Champine called the results a "massive Q3 beat" in a research note.

The company said net revenue climbed 56 percent in the quarter to $175.8 million.

"I did expect the beat, but it was more than I expected. It was a very strong quarter," said Robert W. Baird & Co analyst Erika Maschmeyer, who rates the company's stock "outperform."

"They increased guidance from where they had implied previously on both the top and the bottom line, which is what you like to see — broad strength," she added.

Lululemon said it expects earnings per share of between 46 and 48 cents in the fourth quarter, up from the 39 cents to 41 cents a share implied by its previous full-year forecast.

It forecast net revenue for the same period to be between $210 million and $215 million, with a high-teens percentage rise in same store sales.

"There are people still learning the brand, discovering the brand, building up their wardrobes...they should be able to sustain high comps (comparable-store sales) for several quarters. I wouldn't want to bet the farm on 30 percent comps, but there's potential for continued sustained growth," said Maschmeyer.

Lululemon's same-store sales, or sales at outlets open a year or more, rose 29 percent in the third quarter.

The Vancouver-based company has carved a lucrative niche market and has become one of the few Canadian retailers that have successfully entered the U.S. market.

It operates 130 stores in Canada, the United States and Australia, not including its community-oriented showrooms that offer fitness classes and incorporate local events.

During a conference call with analysts, Lululemon said it will open two new Ivivva Athletica stores, which sell the company's children's line, one in Edmonton and one in Toronto.

Lululemon, whose stores are mostly corporate-owned, plans to add 20 to 25 new North American outlets next year and two in Australia.

E-COMMERCE GROWTH

A big part of Lululemon's growth story is its e-commerce site. Online sales climbed more than 200 percent from the year-before quarter, also beating forecasts.

"We believe that we are just scratching the surface in e-commerce and that a level of 10 percent of sales is achievable in the short to medium term," Chief Executive Christine Day said on the conference call.

"There is little doubt that this is best-in-class performance among women's retailers, and this is not the Christmas quarter," Tal Wooley, an analyst at RBC Capital Markets, said in a research note.

© 2014 Thomson/Reuters. All rights reserved.

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