Lululemon profit drops to $19M on lowered outlook
Company will buy back $450 million worth of its shares
Lululemon Athletica Inc. is reporting a lower first-quarter profit of $19 million as the yoga wear company moves to boost its share price and move beyond boardroom controversy.
Lululemon said Thursday that its board of directors has approved a stock buy-back program up to $450 million US of its common shares to create more shareholder value after seeing its shares sink over the past year.
The Vancouver company's shareholders re-elected two directors a day earlier that the company's founder and largest shareholder Chip Wilson voted against in an apparent boardroom backlash, the latest controversy to come to light at the struggling retailer.
Wilson, who founded the company in 1998, had said he felt change was needed at the board level to boost the company's lagging share price.
However, the majority of shareholders didn't agree with Wilson's position, and neither did the company.
CEO Laurent Potdevin said while the company is pleased with the first-quarter results, 2014 is "very much a transitional year" for Lululemon.
"We are focused on building a scalable foundation to further elevate our North American business and pursue the brand's incredible international potential," Potdevin said in a news release.
In the latest of several management changes over the last few months, long-serving chief financial officer John Currie announced Thursday he will retire by the end of the fiscal year.
Lululemon said it will engage a leading executive search firm to begin "an open and comprehensive search" for his replacement to allow for a smooth transition.
In its financial results, diluted earnings per share for the quarter were 13 cents compared with 32 cents year-over-year.
Excluding a one-time cost, diluted earnings per share were 34 cents in the first quarter, beating analysts' expectations of 32 cents.
Net revenue for the quarter increased 11 per cent to $384.6 million from $345.8 million.
Lululemon also said it has reduced its financial outlook for the rest of 2014.
Revenue expected to drop
For the second quarter of fiscal 2014, Lululemon expects net revenue to be in the range of $375 million to $380 million and diluted earnings per share of 28 cents to 30 cents.
For the full fiscal 2014, the company now expects net revenue to be in the range of $1.77 billion to $1.80 billion. Diluted earnings per share are expected to be in the range of $1.50 to $1.55 for the full year, or $1.71 to $1.76 adjusted. The guidance does not reflect the potential repurchase of shares.
It was the first annual meeting for Potdevin, the former president of Toms Shoes. Potdevin told the gathering of about 50 shareholders on Wednesday that his team is "very focused and hard at work" to grow the company.
Lululemon has been trying to shift the attention back to its products and the deeply ingrained yoga culture that has defined the company.
Potdevin was hired late last year in the aftermath of the company's supply chain problems related to a style of yoga pants that had fabric, which was criticized as being too sheer.
That was followed by a public relations gaffe, when Wilson said in a TV interview in early November that, "some women's bodies just actually don't work" for Lululemon's tight-fitting pants. He issued a video apology on Lululemon's YouTube video channel a few days later, which quickly went viral.
Wilson resigned as board chair in December and was replaced by Michael Casey, a former Starbucks executive. Wilson has said he voted against the re-election of Casey and director RoAnn Costin, a private equity executive.
Shares of Lululemon have been steadily sinking over the past year and are down more than 40 per cent from their 52-week high of $77.75 US on the Nasdaq in early October. They closed at $44.30 on Wednesday.