Lululemon Profits Climb; Looks Abroad for Growth

Despite the strong results, the brand noted slight decelerating demand as the year closes out.

Strong demand for its vibrant yoga-inspired workout apparel lifted Lululemon Athletica Inc.’s third-quarter profits by 47.7 percent Thursday, although the brand noted it has experienced some “softness” early in the fourth quarter.

This story first appeared in the December 7, 2012 issue of WWD.  Subscribe Today.

Lululemon chief executive officer Christine Day wasn’t fazed, as the Vancouver-based apparel maker is in the process of stretching its reach to overseas markets, such as Hong Kong, Singapore, the U.K. and Europe.

Currently, the company, which operates 201 stores, plans on opening its first unit in Hong Kong, as well as a host of showrooms across Europe and Asia over the next 24 months.

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“We have said previously that we have been spending the past several months doing a lot of behind-the-scenes work, and our international expansion is now entering a phase of more on-the-ground development,” Day said, adding that Lululemon already has e-commerce in the aforementioned markets.

Although the brand has experienced “significant” e-commerce growth — in the third quarter, sales were up 89 percent to $14.5 million — it also saw some price resistance on newer technical product. As a result, Day said it had to bring the prices to a “more accessible level,” especially considering it is the holiday season.

Typically, Lululemon’s activewear hovers between $50 and $200, with the majority of its most basic yoga pants retailing for just under $100.

While that may seem steep for workout gear, those premium prices haven’t deterred the brand’s loyal customer base.

The Vancouver-based company posted net income of $57.3 million, or 39 cents a diluted share for the period ended Oct. 28, compared with year-ago income of $38.8 million, or 27 cents a share. Net revenue for the quarter expanded 37.5 percent to $316.5 million from $230.2 million. Analysts anticipated earnings per share of 37 cents on sales of $305.3 million.

Same-store sales during the quarter rose 18 percent, as pricing adjustments brought gross margin to 55.4 percent of sales versus margin of 55.8 percent a year earlier.

Although Lululemon saw robust growth, it expects fourth-quarter earnings to total between 71 and 73 cents, lower than the 75-cent profit predicted by Wall Street.

For the year, the brand estimated EPS to be in the $1.81 to $1.83 range on sales of between $1.36 billion and $1.37 billion. That’s slightly down from its previous projections of annual earnings of $1.76 to $1.81 a share on revenue of $1.35 billion to $1.36 billion.

Analysts are looking for the brand to earn $1.82 cents a share on sales of $1.36 billion for the year.