(Adds CEO comment, details on shipment delays, CEO search,
By Solarina Ho
TORONTO, Sept 12 Retailer Lululemon Athletica
Inc, still recovering from an embarrassing recall of
excessively see-through yoga pants, trimmed its outlook for
full-year sales and profits on Thursday, saying tougher quality
controls have spawned delivery delays.
Vancouver, British Columbia-based Lululemon has made
form-fitting yoga pants a wardrobe staple for millions of women
and built a reputation for clothing that can withstand years of
use and hundreds of washes.
But the March 18 recall of black Luon fabric yoga pants, its
biggest-selling item, dented its reputation badly, and its chief
product officer left the company in April.
Lululemon's shares fell as much as 8 percent after it said
the third quarter had got off to a weak start due to late
deliveries of fall seasonal items, a hangover from the
"We're working back through all of our other fabrics to make
sure that we're hitting the quality standard we want," Chief
Executive Christine Day, who is also set to leave the company,
said on a conference call.
She said commercialization - the development and testing of
fabrics and products - is the main bottleneck facing the
company, which effectively created the market for high-end yoga
Delivery delays are likely to last through the end of the
year even though Lululemon is air-freighting some items to its
stores, and incurring extra costs as a result, she added.
The delays come as Lululemon is seeing increased competition
from Under Armour Inc, Nike Inc, and Gap Inc's
Athleta banner, among others.
The retailer said on Thursday it expects comparable-store
sales growth in the mid single-digits in the third quarter. That
is down from the company's heyday, when sales rose 10 percent
and more from one quarter to another.
"Lulu has been on a growth tear for many years and at some
point that growth has to slow," Liz Dunn, a senior analyst at
Macquarie Group said in an interview with Reuters TV. [reut.rs/1e6piFj
"They are still producing exceptional same-store sales
growth relative to peers, but it certainly...is less than what
they had been experiencing."
The company is looking for a new CEO to replace Day, who
stunned the market when she said in June that she would step
down once a replacement is found.
Day told analysts that the board search committee was
talking to a number of candidates and that it expected to narrow
the field to a final candidate in the "coming months".
Analysts say finding the right CEO is crucial for Lululemon,
which is still a fast-growing operation.
"We think this requires an extremely sophisticated
executive, preferably someone with more of a luxury background
than mass," said Omar Sadd, a partner at ISI (International
Strategy & Investment) Group.
Jerry Stritzke, a Lululemon board member who left his job as
chief operating officer at Coach Inc this summer, has
been widely tipped as a CEO contender.
Industry sources have also named Chanel CEO Maureen Chiquet,
Nike vice president Jan Singer, Warnaco Group Inc CEO Helen
McCluskey, Victoria's Secret Direct CEO Bridget Ryan Berman, and
Tumi Holdings CEO Jerome Griffith as possible candidates.
For the 2013 fiscal year, which ends in February, Lululemon
expects net revenue of $1.625 billion to $1.635 billion, down
from its previous forecast of $1.645 billion to $1.665 billion.
The company trimmed its forecast for full-year earnings per
share to $1.94 to $1.97 from the previous $1.96 to $2.01.
Lululemon forecast third-quarter net revenue of $370 million
to $375 million, and diluted earnings per share of 39 cents to
Lululemon, a Canadian company that lists its shares only on
the U.S. Nasdaq index, said net income fell to $56.5 million, or
39 cents per share, in the second quarter from $57.2 million, or
39 cents per share, a year earlier.
Analysts had expected earnings of 35 cents a share,
according to Thomson Reuters I/B/E/S.
Net revenue rose 22 percent to $344.5 million, on the high
end of Lululemon's guidance. This compared with the average
analyst forecast of $343 million. Comparable store sales rose 8
percent for the quarter on a constant dollar basis.
The company's shares pared some of their early losses and
were down 5.9 percent at $64.97 on Nasdaq late in the day.
(Additional reporting by Bobbi Rebell and Garima Goel; Editing
by Janet Guttsman, Maureen Bavdek and Peter Galloway)