* Quarter's same-store sales to slow to high single digits
* Quarterly profit 39 cents a share vs Street's 37 cents
* Opening full store in Hong Kong, testing elsewhere
* Revenue up 37 pct to $316.5 million
* Shares rise more than 5 percent
(Adds quote from analyst, detail on e-commerce.)
By Allison Martell
Dec 6 Lululemon Athletica Inc said on
Thursday it would aggressively expand its chain of yoga shops in
Europe and Asia, providing new avenues for growth even as its
stellar performance in North America loses some luster.
Shares of the Vancouver-based retailer rose more than 5
percent after the news, which came as a counterweight to Lulu's
warning earlier on Thursday that it expected sales growth at
established stores to slow sharply in the current quarter.
Third-quarter results, however, came in stronger than expected.
Lululemon, with 201 stores in North America and Australia,
will soon open its first full store in Asia, selecting Hong Kong
for the debut.
Featuring pricey, fashionable athletic clothing for young
women, Lulu will also start testing the market in up to 15
countries over the next two years, Chief Executive Christine Day
said during a conference call.
"I think that the world is really available to them. I think
it's a concept that translates well globally," said Canaccord
Genuity analyst Camilo Lyon before Day's comments.
That said, Lulu appears to be headed for a speed bump in its
current markets. The company said it expected same-store sales
to grow "in the high single digits" in the fourth quarter ending
late January - much slower than a 26 percent jump a year
earlier. Profit margins also narrowed while inventories rose.
"They will tend to guide very conservatively - they are
almost like the Apple of specialty apparel," said Brian Sozzi,
chief equities analyst at NBG Productions, unfazed by the
outlook. "They beat their guidance pretty nicely today."
Shares of Lululemon were up 5.4 percent in midday trading on
the Toronto Stock Exchange, at C$71.74. On Nasdaq, the stock was
at $72.24, up 5.3 percent, after falling as much as 4.1 percent
in premarket trading following the earnings news.
HOPING TO REPEAT
The company has posted robust growth in recent years, thanks
in part to its push into the United States.
The potential for a repeat of this success in Europe and
Asia has underpinned analysts' optimism, even though Lulu shares
trade at a steep multiple to its earnings.
Lululemon tends to move slowly in new markets, recruiting
"ambassadors" - local fitness instructors and athletes - to
promote the brand, and running free yoga classes out of a
showroom before committing to a full store. It uses its
showrooms - small stores with limited product and opening hours
- to test new markets.
"Based on the success of both Hong Kong showrooms, we are
actively looking to secure real estate for a store in that
market," Day said.
The company plans to open a second showroom in London next
year, as well as more showrooms elsewhere in Europe and Asia,
"pre-seeding" in up to 15 markets over the next two years.
Lululemon's e-commerce division, one aspect of its push
overseas, is already driving sales.
The company recently launched websites serving Hong Kong,
Singapore, Britain and the European Union. Direct-to-consumer
revenue rose 89 percent to $45.1 million in the third quarter,
growing to 14.3 percent of revenue from 10.4 percent a year
It is also hiring for its international business, searching
for showroom managers and bringing on a new senior executive.
Barbara Le Marrec comes from Starbucks Corp where she
headed up operations in Japan.
The company said it has opened third-party logistics and
distribution centers in Hong Kong and Rotterdam. Along with
Britain and Hong Kong, Singapore and Germany are high-priority
Net income for the third quarter ended Oct. 28, rose to
$57.3 million, or 39 cents a share, from $38.8 million, or 27
cents a share, a year earlier. Analysts, on average, had
expected 37 cents a share.
Net revenue grew 37 percent to $316.5 million, ahead of the
average analysts' forecast of $305.3 million.
For the fourth quarter, Lulu expects revenue of $475 million
to $480 million. Analysts, on average, forecast $490.5 million,
according to Thomson Reuters I/B/E/S. The company sees earnings
per share of 71 to 73 cents, below the average estimate of 75
Canaccord's Lyon, who recently placed a "buy" rating on
Lululemon, said the company's outlook for sales growth was
conservative, and that inventory, up 27 percent over the
previous year, had lagged sales growth of 37 percent.
Lulu said inventory was $164.7 million at the end of the
Gross profit margin fell to 55.4 percent of revenue from
55.8 percent last year, and operating margin slipped to 25.5
percent from 25.9 percent.
(Editing by Frank McGurty and Kenneth Barry)