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Lululemon Income, Sales Rise in Q4

The company looks to accelerate international expansion and focus more on design and innovation of product lines.

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Shares of Lululemon Athletica Inc. rose 6.1 percent Thursday following a fourth-quarter report that was better than analysts expected and the disclosure of an international infrastructure plan for overseas expansion.

For the three months ended Feb. 2, net income rose 0.3 percent to $109.7 million, or 75 cents a diluted share, from $109.4 million, or 75 cents, a year ago. The consensus estimate was 72 cents. Net revenue gained 7.3 percent to $521 million from $485.5 million. Analysts were expecting $515.1 million for the quarter. Comparable-store sales fell 2 percent in the period, but total comps including direct-to-consumer rose 4 percent.

For the year, net income rose 3.3 percent to $279.5 million, or $1.91 a diluted share, on a net revenue gain of 16.1 percent to $1.59 billion.

Laurent Potdevin, chief executive officer, said in a conference call to Wall Street analysts that 2014 is an “investment year with an emphasis on strengthening our foundation, reigniting our product engine and accelerating sustainable and controlled global expansion.”

He said that he intends to “accelerate our global expansion. We see clear evidence of demand both in Asia and Europe with several countries ready for stores.”

In a telephone interview Potdevin said the company’s general manager in Asia has been checking out locations for expansion and that the firm is doing similar scouting for European sites.

Lululemon will open its first U.K. unit today in the former Jack Wolfskin space on Long Acre in London’s Covent Garden.

Spanning 3,000 square feet, the shopfit is similar to that of Lululemon stores worldwide — with a British twist. It features works by local artists Tobias Hall and Christine Kawasaki-Chan and is decorated with small wooden crates sourced from nearby Covent Garden Market. There is also a column covered in green tiles with a pub-style beer tap.

The Covent Garden location will also offer free yoga classes on the weekends in addition to the classes it hosts at Lululemon showrooms in Chelsea, Islington and Richmond.

The shop will carry men’s and women’s apparel and accessories, including jackets, trousers, tops and yoga mats. Prices range from 10 pounds, or $16 at current exchange, for a headband, to 198 pounds, or $328, for a jacket.

On the merchandising side of the business, Potdevin said the company is going back to its “design-led” roots. “The company’s incredible design and technological innovation came together really well. When it [started] focusing on supply-chain quality and turning around its product, its lost a little bit of that mind-set, which was the strength of the foundation. We’re really getting back to the amazing tension between design, fashion, style and innovation,” Potdevin said.

The company’s chief financial officer John Currie noted on the call that regions where there are new stores were trending better than older stores as the consumer is still “establishing her core wardrobe.”

Even though retail comps were down, Potdevin disputed whether that meant sales of yoga apparel were declining. “In those markets, [customers in our] more mature stores are focused on core product, and our core product has not grown as quickly as our seasonal product,” he said.

For the first quarter of fiscal 2014, the company guided diluted earnings per share to be in the range of 31 cents to 33 cents, on expected net revenues of $377 million to $382 million. For fiscal year 2014, diluted EPS is expected at between $1.80 and $1.90, on a net revenue range of $1.77 billion to $1.82 billion.

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