Lululemon expects lower earnings, less revenue in 2013

Already bruised and battered from the recall of its see-through Luon yoga pants earlier this year and the loss of its CEO, Lululemon took another hit Thursday, announcing that its revenue and profit for the 2013 fiscal year would be less than projected.

Shares down after company revises projections downward

Lululemon ran up against several obstacles this year from problems with its Luon yoga pants to the loss of two top executives and on Thursday revised its revenue projections for the year downward. (Lucas Jackson/Reuters)

Already bruised and battered from the recall of its see-through Luon yoga pants earlier this year and the loss of its CEO, Lululemon Athletica Inc. took another hit Thursday, announcing that its revenue and profit for the 2013 fiscal year would be less than projected.

The lower earnings forecast forced the company's shares down about five per cent in afternoon trading on the Nasdaq. The stock price hit a low of $63.50 US, a drop of about eight per cent from Wednesday's close, before recovering some of that loss and trading around $66 in the early afternoon.

The maker of high-end yoga clothing said earnings would be in the range of $1.94 US to  $1.97 per share  rather than the $1.96 to $2.01 per share forecast in its last quarterly report.

Revenue would fall to between $1.625 billion  and  $1.635 billion, less than the $1.645 billion to $1.665 billion forecast.  

The company also announced its financial results for the quarter on Thursday, which were positive. Net revenue increased 22 per cent to  $344.5 million in the quarter ending Aug. 4. Gross profit for the quarter increased 19 per cent to $186 million.

CEO search continues

Lululemon is still looking for a new CEO to replace Christine Day, who announced her resignation in June but is staying on as CEO during the search for her replacement.

Day's departure was the company's second loss of an executive. Chief product officer Sheree Waterson left in April soon after the company was forced to pull its Luon yoga pants from store shelves because they were too sheer.

Lululemon blamed the sheerness on a style change and production problems and hired a new team to oversee the making of the pants.

Though feedback to the improved Luon products has been positive and those products have been "flying off the shelves," the company is still feeling the impact of the problems, said Day on a conference call.

Every time a change is made to the design or fabric of a product, it slows the production process down. As a result, Lululemon has seen "seasons collapsing" — summer inventory lingering in stores three to three-and-a-half weeks longer than it should as shipments of fall products are held up.

"For us, that's a short-term pain for the long-term gain on really differentiating ourselves on quality," said Day.

Luon debacle cost company $40M-45M

Chief financial officer John Currie said the revenue impact from the Luon debacle is expected to be $40 million to $45 million — not as severe as previously thought.

But Day struck a positive note in a statement accompanying the quarterly results.

"2013 continues to be the most important and most productive year in Lululemon's history," she said. 

"We have not only worked our way back from the black Luon setback, but have also added very talented people in important functions and have taken major steps forward on a number of key fronts including the expansion of our international and men's businesses and many logistical initiatives." 

With files from The Canadian Press