UPDATE 5-Lululemon profit and forecast robust, shares rise

Fri Jun 10, 2011 5:12pm EDT

* Fiscal Q1 EPS $0.46 vs $0.27 a year earlier

* Sees Q2 EPS of $0.42-$0.44; Full year $2.10-$2.16

* Shares up close to 5 pct in Toronto (Updates share price to close. In U.S. dollars unless noted)

By John McCrank

TORONTO, June 10 (Reuters) - Yoga- and leisure-wear retailer Lululemon LLL.TO (LULU.O) boosted its yearly profit forecast on Friday after strong online and in-store sales helped its earnings top expectations for yet another quarter.

Shares in the company ended up 4.89 percent at C$88.00 in Toronto and up 4.41 percent at $89.94 in New York, standing out amid declines of more than 1 percent in both markets.

Vancouver-based Lululemon warned last quarter that it did not have enough product to meet strong demand for its trendy apparel, which now includes running and cycling gear, and that could limit growth in its fiscal first quarter.

But earnings per share came in 8 cents higher than analysts had forecast.

"I'm not surprised that they had a great quarter because our checks had been very, very positive," said Jennifer Milan, an analyst at Sterne, Agee & Leach. "But I was surprised at the level of the beat, given the fact that they've had inventory constraints for much of the quarter."

Inventories hit a low point toward the end of February, but arrangements for early delivery in April helped boost sales, Chief Financial Officer John Currie said in a call with analysts.

Comparable stores sales rose 16 percent in the first quarter. Currie said sales would have been up around 20 percent with more robust inventories.

Net income in the quarter to May 1 rose to $33.4 million, or 46 cents a share, up from a year-earlier profit of $19.6 million, or 27 cents a share.

Analysts on average had forecast earnings of 38 cents a share, according to Thomson Reuters I/B/E/S. The company has consistently beaten earnings expectations, helping its shares more than double in value over the past year.

Revenue for the company, which has stores in Canada, the United States and Australia, surged 35.1 percent to $186.8 million.

Gross profit rose 48 percent to $109.7 million.

OUTLOOK STRENGTHENED

Lululemon forecast second-quarter earnings of 42 cents to 44 cents a share on revenues of $200 million to $205 million. For the full-year it forecast earnings of $2.10 to $2.16 a share, on revenue of $915 million to $930 million.

Last quarter, the company said it expected full-year net revenue of $885 million to $900 million and full-year earnings of $1.90 to $2.00 a share.

Analysts had forecast a profit of 40 cents a share in the second quarter, and $2.04 a share for the year.

"There had been some concern that sourcing costs would prove to be more aggressive than they initially thought, and they haven't been," said Sharon Zackfia, an analyst at William Blair & Company.

The revised forecast reflects the upside in the first quarter, which points to expectations by the company that input costs will remain in check, she said.

Lululemon has carved out a lucrative niche market and has become one of the few Canadian retailers that has successfully entered the U.S. market. [ID:nN01164461]

"This is a very, very early-stage growth company," Milan said. "They have extreme brand loyalty and given the fact that they've been inventory constrained, I don't think that we've really seen what true demand is for this company yet."

The retailer ended the quarter with 142 stores, compared to 128 a year earlier. It opened three stores in the United States and one in Australia. The company also opened an Ivivva store, aimed at the youth market, in Canada.

It plans to open six Lululemon stores in the United States and one in Australia in the current quarter.

The company also has community-oriented showrooms that offer fitness classes and incorporate local events.

Lululemon's growth has not gone unnoticed by other retailers, and long-established brands like Nike (NKE.N), Adidas (ADSGn.DE), Limited Brands Inc LTD.N-owned Victoria's Secret, and Gap Inc (GPS.N) have been stepping up the competition. ($1=$0.98 Canadian) (Additional reporting by Euan Rocha and Julie Gordon; editing by Peter Galloway)

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