Lululemon Q3 Profit Drops, Lowers Guidance

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Lululemon Q3 Profit Drops, Lowers Guidance
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Lululemon Athletica inc. (NASDAQ:LULU) (TSE:LLL) unveiled a reduced third-quarter profit of $60.45 million and less sales growth than anticipated as well as forecasting lower revenue for the fourth-quarter.

The Vancouver, British Columbia-based company’s announcement comes in the run-up to the crucial holiday shopping season.

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Jump in online sales

While releasing its results Thursday morning, the Canadian yogawear chain reported a better-than-expected quarterly profit, thanks to a 27% jump in its online sales. Lululemon Athletica inc. (NASDAQ:LULU) (TSE:LLL) has marginally raised its adjusted profit forecast to $1.74 – $1.78 per share from $1.72 – $1.77 for the year ending early February.

However, the clothing company trimmed its revenue forecast to $1.77 billion-$1.78 billion from $1.78 billion-$1.80 billion. According to Thomson Reuters, analysts on average were anticipating earnings of $1.77 per share on revenue of $1.79 billion.

The clothing company’s fourth-quarter sales forecast includes about $15 million impact due to West Coast port delays, a lower Canadian dollar and delayed store openings.

For the third quarter ended November 2, Lululemon Athletica inc. (NASDAQ:LULU) (TSE:LLL)’s net income dropped to $60.5 million, or 42 cents per share as against $66.1 million, or 45 cents per share posted a year earlier. However, analysts on average had anticipated earnings of 38 cents per share.

Though the yogawear chain’s net revenue rose 10% to $419.4 million, it also fell short of the average analyst estimate of $424.8 million.

Lululemon had to endure difficult year

As reported by ValueWalk, Lululemon Athletica inc. (NASDAQ:LULU) (TSE:LLL) had to grapple with several events last year, including the “uninspiring tenure thus far” of the company’s new CEO. Sterne Agee analysts in their report last month pointed out that many of the apparel maker’s previous customers abandoned the brand and that it would be difficult to get them back because of tough competition from Nike Inc (NYSE:NKE) and others. The Sterne Agee analysts accordingly downgraded the company’s stock from Neutral to  Underperform and set a price target of $39 per share.

However, earlier this month, Wells Fargo Securities saw things differently and upgraded the clothing company from “Market Perform” to “Outperform” and raised the price target in the range of $50-$54 per share. The analyst noted that Lululemon Athletica inc. (NASDAQ:LULU) (TSE:LLL) enhanced its supply chain and merchandise margins near an inflection point, and argued management will be able to refocus on the company’s growth story.

When unveiling the third-quarter results today, Lululemon Athletica inc. (NASDAQ:LULU) (TSE:LLL) chief executive Laurent Potdevin said that all key facets of its business contributed to improvements that the clothing company experienced as the third quarter progressed.

Exuding confidence, he said: “I am confident that our strong team, coupled with strategic investments into our core business areas, have already made a positive impact and place us on a strong trajectory for further global growth”.

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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