Shares of Lululemon Athletica Inc. tumbled Thursday after the retailer reported a slide in first-quarter margins and profits and warned of comparable-store sales declines in the near term.
For the three months ended May 3, net income at the Vancouver-based yogawear firm fell 23.1 percent to $6.5 million, or 9 cents a diluted share, versus $8.5 million, or 12 cents a share, in the year-ago quarter. Revenues grew 6.3 percent to $81.7 million from $77 million in 2008, but comps fell 8 percent.
Unfavorable exchange rates and higher occupancy costs, relative to sales, drove down gross margin to 42.8 percent of sales from 53.4 percent a year ago. Investments in Lululemon’s sourcing operations were also cited for the drop.
Despite beating Wall Street’s expectations of earnings per share of 8 cents on sales of $74.2 million in the first quarter, disappointing guidance, coupled with the lower margins, pushed the firm’s shares down $1.88, or 12.4 percent, to $13.34 in Nasdaq trading Thursday.
The company said it expects comps to drop in the midsingle digits in its second quarter and EPS of 8 cents to 9 cents on revenues between $85 million and $90 million. The EPS guidance was below the consensus estimate of 11 cents, according to Yahoo Finance.
“We see the current market conditions and the opportunities to increase our points of differentiation, solidify a strong manufacturing base and grow our market share,” chief executive officer Christine Day said on a call with investors. “With this in mind, we have made some key decisions to take some actions to compress our gross margin in the short-term but provide long-term growth opportunities.”
Day said the company has focused on securing spots in better factories and expanding organic cotton and natural fabric lines. She said Lululemon has improved the quality of certain garments without passing along costs and has reduced prices on its yoga accessories to maintain its hold on that market.
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