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Sep 5, 2019

Lululemon jumps after boost in outlook, defying apparel weakness

Lululemon jumps after earnings beat highest estimates


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Lululemon Athletica Inc. climbed in late trading after raising its annual profit forecast yet again and posting another quarter of brisk sales growth, showing the yogawear maker is still avoiding the weakness that’s pummeled other North American apparel retailers.

Comparable sales -- a closely watched measure in the industry -- rose 17 per cent on a constant-currency basis in the latest quarter, above the 12 per cent estimate compiled by Consensus Metrix. The result marks the seventh straight quarter it’s been above 10 per cent -- a rare achievement in retail.

Lululemon now sees profit of US$4.63 to US$4.70 a share this year, 12 cents more than its previous forecast, despite earlier warnings that increased use of air freight will trim margins.

Key Insights

• The Vancouver-based company’s 10th consecutive profit beat is another sign that demand for US$98 yoga pants and $68 men’s tank tops remains strong. Chief Executive Officer Calvin McDonald said the company made progress in all of its main areas of focus.

• These areas broadly include creating momentum with new products -- especially for men -- while boosting digital sales and expanding into overseas markets like China, where it just re-launched an e-commerce site. McDonald said Lululemon has “significant runway” in front of it.

• E-commerce, which boasts higher profit margins than traditional sales, continues to underpin the company’s growth. Comparable online sales climbed by 31 per cent on a constant-currency basis in the period, and those sales represent a bigger piece of total revenue than they did a year earlier.

Market Reaction

• Lululemon shares rose as much as 5.8 per cent in late trading before paring some of the gain. The stock, which has 20 buy recommendations from analysts, has advanced 55 per cent this year through Thursday’s close.