Lululemon Shares Slip on Outlook

While the company's third quarter results beat Wall Street’s consensus by 4 cents, its fourth-quarter guidance was below analysts’ expectations.

Outside a Lululemon store.

Lululemon Athletica Inc.’s shares dropped 11.7 percent Thursday after the company, whose third quarter results beat Wall Street’s consensus by 4 cents, provided fourth-quarter guidance below analysts’ expectations.

This story first appeared in the December 13, 2013 issue of WWD.  Subscribe Today.

The company guided fourth quarter diluted EPS in the range of 78 to 80 cents, on a net revenue range of between $535 million and $540 million. It also forecasted flat comps for the quarter on a constant-dollar basis. Analysts’ consensus pegged EPS at 84 cents on net revenue of $572.5 million.

For full fiscal year 2013, Lululemon expects diluted EPS of between $1.94 to $1.96 and net revenue essentially flat at $1.61 billion compared with a year ago.

Shares of Lululemon closed down $7.96 at $60.39.

For the three months ended Nov. 3, net income rose 15.3 percent to $66.1 million, or 45 cents a diluted share, from $57.4 million, or 39 cents, a year ago. Wall Street was expecting EPS of 41 cents. Net revenue rose 20 percent to $379.9 million from $316.5 million, with comparable store sales rising 5 percent. The firm said direct to consumer revenue jumped 37 percent to $62 million, or 16.3 percent of total company revenues.

For the nine months, net income rose 5.4 percent to $169.9 million on a 20.9 percent gain in revenue to $1.07 billion.

Christine Day, Lululemon’s chief executive officer, said, “This so far has been a year of challenges, learning, and growth for Lululemon, and while our outlook for the fourth quarter is being impacted by both macro and execution issues, I believe that the investments we are making in the business combined with the team in place create a strong platform for growth in the years ahead.”

Day is set to leave the company at yearend. She made known her plans to resign in June. Laurent Potdevin was named her successor on Tuesday. Potdevin was president of Toms Shoes and before that president and ceo of snowboarding firm Burton. His technical apparel expertise and global experience are expected to help the company expand on an international basis.

Neither Day nor Wilson were participants in the conference call to Wall Street analysts.

John E. Currie, the firm’s chief financial officer, told analysts, “The third quarter went pretty much as we had planned and guided. We started the quarter running at a low single digit comp rate, as delivery issues caused us to keep summer goods on our floors through August, when we normally would have set our fall product.”

He said that the black Luon yoga pant, which was the subject of a recall earlier this year, drove sales in August and September. He noted that the “late product deliveries that impacted [the third quarter] have also continued, resulting in uneven product flow, and in some cases, cancellation of purchase orders. We know that any lost sales incurred during the fourth quarter resulting from this increased focus on quality is the smart investment for the long-term health of the business.”

The company has been fine-tuning its supply chain team and quality control procedures, the cfo said.

Currie also acknowledged the issues the company faced during the year and its impact on bottom-line results: “In addition, we are seeing a slowdown in traffic to our stores. Our best guess is that this is a result of a combination of causes. There is a difficult macro retail backdrop with all retailers experiencing lower traffic, but it would be naïve to think that the company-specific issues that we’ve been dealing with this year from the Luon setback to the recent negative [public relations] issues have not also had some impact. The combination of traffic and product issues resulted in a lower expectation for fourth quarter guidance.”

RELATED CONTENT: WWD Earnings Tracker >>