By Euan Rocha and Allison Martell
TORONTO, June 12 Lululemon Athletica Inc
offered little sign on Thursday that it was pulling out
of an extended slump, cutting financial forecasts and warning
that second-quarter sales at its once-trendy yogawear shops were
off to a weak start.
Its shares dropped more than 15 percent after it said
purchases were dropping even as customer traffic was picking up.
During a conference call, Chief Executive Laurent Potdevin
blamed the decline in part on a "suboptimal" product assortment.
With Thursday's retreat, the shares have dropped more than
40 percent since the company announced an embarrassing recall of
overly sheer yoga pants in March 2013. The incident shook up
customers and investors in the company just as lower-priced
competitors started to crowd into the yogawear market, a
business that Lululemon virtually invented.
"We have a core product assortment that has not been evolved
as quickly as it should have been," Tara Poseley, Lululemon's
new chief product officer, said on the call. She said Lululemon
did not offer enough seasonal products, as opposed to all-season
"core" products, in the first quarter.
The results came a day after Lululemon's founder and largest
shareholder, Dennis "Chip" Wilson, announced he had voted
against the election of the company's new chairman as well as
another board member. Wilson praised management but said the
board is too focused on short-term growth.
For the second quarter, which started on May 5, Lululemon
expects no comparable sales growth at all.
Comparable sales edged up 1 percent in the first quarter,
but the gain reflected an increase in online business. In
established stores, sales dropped 4 percent.
Potdevin admitted to investors earlier this year that
Lululemon was "not the only game in town anymore." Rivals such
as Gap Inc, Under Armour, VF Corp and
even department stores are pushing fashionable workout gear.
Even as first-quarter earnings came in slightly ahead of
expectations, Lululemon's latest forecasts reinforced the
impression that the retailer is struggling to regain its stride.
"The second quarter guidance is for a real deceleration from
the already anemic first quarter," said Cowen and Co analyst
In another blow, Lululemon said veteran Chief Financial
Officer John Currie would retire by the end of the fiscal year.
His departure comes about a year after Chief Executive Christine
Day announced her own exit, a move that followed an extended
slowdown in sales at a company once renowned for double-digit
The company now expects revenue for the year to be in the
range of $1.77 billion to $1.80 billion, with adjusted earnings
of between $1.71 and $1.76 per share. It had earlier forecast
earnings of $1.80 to $1.90 per share on revenue of $1.77 billion
to $1.82 billion.
Analysts, on average, had expected full-year earnings of
$1.89 a share on revenue of $1.8 billion, according to Thomson
Vancouver-based Lululemon's reputation for selling pricey
but top-quality yoga and running clothes was badly tarnished by
last year's recall, which came after some customers noticed that
their stretchy pants were partially transparent.
For more than a year, it has worked to smooth out quality
and supply-chain issues, battle lawsuits, deal with departing
executives and soothe customers after Wilson said in an
interview that "some women's bodies just actually don't work"
for Lulu's pants.
The retailer had previously said it would not fully resolve
its supply chain issues until 2015.
Excluding a one-time adjustment for planned repatriation of
foreign earnings, the company said profit in the quarter was 34
cents a share. Analysts on average were expecting earnings of 32
cents a share.
On a net basis, profit in the fiscal first quarter ended May
4 fell to $19 million, or 13 cents per share, from $47.3 million
or 32 cents per share a year earlier.
Revenue rose 11 percent to $384.6 million, while sales at
established stores and online sales edged up 1 percent from a
year earlier. The company had forecast little change. The small
gain came thanks to online sales, which rose 25 percent while
comparable sales at corporate stores fell 4 percent.
The company said it could buy back up to $450 million worth
of common shares over two years.
Shares were down 15.5 percent at $37.43 on Thursday
afternoon on the Nasdaq.
(Additional reporting by Shubhankar Chakravorty in Bangalore;
editing by Kirti Pandey, Sofina Mirza-Reid, Chizu Nomiyama and