UPDATE 2-Lululemon profit jumps as retail chain expands

(New throughout. Changes dateline, previous TORONTO. In U.S. dollars unless noted)

By Susan Taylor

OTTAWA, Sept 11 (Reuters) - Lululemon Athletica Inc (LLL.TO) (LULU.O) defied a tough retail market in the second quarter and reported a sharp jump in profit on Thursday, crediting an expansion of its chain of yoga-wear-inspired clothing stores.

Lululemon said its earnings increased to $11.1 million, or 16 cents a share, in the 13 weeks ended Aug 3, partly lifted by a lower tax rate. That is up from $5.1 million, or 7 cents a share, in the comparable period last year.

Revenue rose 48 percent to $85.5 million as sales at stores open for at least one year rose 13 percent on a constant-dollar basis, or 18 percent including the impact of currency exchange, the company said.

Analysts on average had forecast earnings of 13 cents a share before items and revenue of $88.2 million, according to Reuters Estimates.

RBC Capital Markets analysts Howard Tubin and Tal Woolley said the results were generally ahead of expectations as the company recorded lower-than-expected operating expenses.

Shares climbed as much as 8 percent before easing to gains of 3 percent on Nasdaq and 4.5 percent on the Toronto Stock Exchange.

The company, which made a modest cut to its full-year profit forecast in June, maintained its full-year forecast for diluted earnings per share of 68 cents to 71 cents. It sees revenue of $380 million to $385 million.

Lululemon also said it plans to add 35 stores a year for the next three to five years.

For the third quarter, the Vancouver, British Columbia-based company plans to open 15 stores and forecast earnings of 11 cents to 13 cents a share, compared with a profit of 11 cents a share in the year-earlier period.

During the second quarter, gross margin fell by 120 basis points to 51.9 percent, reflecting costs to open stores in the second and third quarters. Higher production, merchandising and distribution costs pinched gross margin.

The company said founder and Chairman Dennis Wilson will transfer or sell about 625,000 shares of Lululemon common stock to some of the chain's founding staff under a stock-based compensation plan.

The company closed three stores in Japan during the quarter and ended the period with 92 stores, up from 60 at the same time last year.

Last year a Canadian government agency ordered Lululemon to remove tags touting the therapeutic benefits of fabric containing seaweed after a newspaper reported that lab tests disputed the claims. ($1=$1.07 Canadian) (Reporting by Jennifer Kwan and Susan Taylor; Editing by Peter Galloway)