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Dec 8, 2016

Lululemon shares jump as Q3 profit tops estimates

A Lululemon store logo is pictured on a shop in Santa Monica, California

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TORONTO - Vancouver-based yoga and leisure apparel retailer Lululemon Athletica Inc (LULU.O) on Wednesday reported quarterly profit that beat analysts' forecasts, helped by higher-than-expected gross margins and sales.

Supply chain improvements, a problem area that has plagued the company in recent years, and lower product costs underpinned the company's improved margins and were also driving improvements in the fourth quarter, executives said in an analysts' conference call.

"We continue to be on track with our five-year plan of doubling our revenue and more than doubling our earnings," said chief executive Laurent Potdevin.

"The gross margin expansion is a key element in the earnings recovery that we see today and expect going forward."

Gross margin, or revenue less the cost of goods sold, rose to 51.1 per cent, from 46.9 per cent a year ago.

Third-quarter sales online and at stores open at least a year rose 7 per cent, excluding exchange rate fluctuations. That beat the 5.4 per cent increase expected by analysts, according to Consensus Metrix.

The fourth quarter began slowly in November, before picking up around Black Friday and Cyber Monday weekend, executives said, noting strong double-digit same-store sales during the U.S. Thanksgiving holiday period.

For the fourth quarter, the company said it was expecting revenue of US$765 million to US$785 million and earnings of 96 cents to US$1.01 per share.

Lululemon's international success helped turn the Vancouver-based retailer into an investor favorite, but struggles with inventory, embarrassing product recalls, and executive changes in recent years have blemished its once-stellar record.

The company, which plans to open its first three stores in China this month, began by carving out a niche market of expensive women's yoga pants before expanding into other areas. It helped push "athleisure wear" into mainstream fashion and now competes in a crowded market that includes Nike Inc and Under Armour, as well as retailers like Gap Inc.

Net income rose to US$68.3 million, or 50 cents per share in the third quarter ended Oct. 30, from US$53.2 million, or 38 cents per share, in the prior year. Revenue was US$544.4 million, up from US$479.7 million.

Analysts were expecting, on average, earnings of 43 cents a share and revenue of US$540 million, according to Thomson Reuters I/B/E/S.

Shares, which closed at US$59.84, climbed more than 15 per cent in pre-market trading on Thursday.