UPDATE 1-Lululemon had lines, product 'misses' in holiday season

Wed Jan 16, 2013 1:19pm EST

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Jan 16 (Reuters) - Lululemon Athletica Inc attracted so many shoppers during the holiday season that some stores had trouble coping with the traffic, the yogawear retailer's chief executive said, while also conceding that some of the chain's new products fell flat.

CEO Christine Day, speaking at an investor conference on Wednesday, said some stores had lines of 50 to 70 people long, with customers waiting an hour just to buy a gift card.

On Monday, Lululemon caught the market off guard when it released new estimates for its fiscal fourth quarter, ending Feb. 3, that showed a sharp deceleration in same-store sales growth. Lulu trades at a premium, and the market has come to expect stellar sales growth every quarter.

"I think our product in the fourth quarter was some of the best we've ever had," said Day. "That said, as you kind of transition into a more technical space, particularly in Canada, coming from our grassroots of really yoga and a little bit more casual wear, for us there were some misses."

Day did not single out specific products. She said the company also needs to make sure it carries enough products at "gift-giving price points."

Lululemon has carved out a profitable niche selling fashionable, pricey workout gear to women. One of very few Canadian retailers to succeed in the United States, the chain is expanding in Europe and Asia over the next two years, and it has small but growing lines for men and girls.

Investors are split on whether Lulu's rapid growth can keep pace with lofty expectations as more competitors, such as Gap Inc's Athleta banner, muscle into its territory, offering similar gear at lower prices.

On Monday, Lulu said it saw same-store sales growth in the "high single digits" for the fourth quarter, well below its 26 percent growth a year earlier.

BOOSTING ONLINE, DISTRIBUTION

When it comes to holiday traffic, the issue was not that Lululemon's highest-volume stores "maxed out," Day said. Instead, some locations with slightly lower volume than those top stores, especially those with newer managers, struggled to handle the crowds.

Next year, those managers will have more experience, a new handheld payment system will help cut down on lines and gift cards will be available online, she said.

Day said Lululemon will also improve its distribution system on the U.S. East Coast so it can replenish stores more quickly.

DEALING WITH HOLIDAY DISCOUNTS

Lululemon charges a premium for its goods - the brand made workout apparel fashionable with signature $98 yoga pants - and it sells very few products at a discount.

Day, speaking at the ICR XChange Conference in Miami, said the pricing strategy is working.

"We recognize, though, that the consumer is changing, and we have to change who we are, as it's going to a more discount holiday, more gift cards during the holiday season to be redeemed after at sales," she said.

"We're up for that game, and we have a lot of things that we'll be implementing next year to play in that changing consumer world."

Shares of Lululemon were down $1.25, or 1.8 percent, at midday on Wednesday on the Nasdaq.

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