Lululemon sales beat expectations, shares rise

By Julie Gordon

VANCOUVER (Reuters) – Lululemon Athletica Inc on Wednesday reported first-quarter sales that beat analyst expectations thanks to better-managed inventory, new store openings and online sales, sending shares up.

The Vancouver-based company, which has struggled in recent years with embarrassing product recalls and inventory problems, said it brought its inventory levels under control during the quarter.

The retailer also touted growth in Europe and Asia, and said e-commerce is growing strongly despite a dip in online growth compared with the previous year.

“Lululemon begins its new fiscal year in very much the same way it ended its last one: with strong overall sales growth fueled by the rise of online and the opening of new stores,” said Neil Saunders, who heads retail research firm Conlumino.

The company’s shares were trading up 2.2 percent at $69.64 on Wednesday.

Lululemon, which competes with Nike Inc and Under Armour Inc , recently implemented a plan to double revenue and regain its position as a leader in the lucrative “athleisure” segment.

“Today we have the right people throughout Lululemon to support the execution of our strategic five-year plan,” chief executive Laurent Potdevin said on a conference call.

But the company is facing increasing criticism from its founder and largest shareholder, Chip Wilson, who has criticized the current leadership for failing to keep up with market trends, and questioned the yogawear retailer’s transparency.

Wilson said last week that the retailer was losing ground against its rivals and called for annual election of the entire board to make directors more accountable for the company’s performance.

Lululemon said total comparable sales, which include stores and online, rose 8 percent on a constant dollar basis in the quarter ended May 1, compared with 6 percent last year.

Net revenue rose about 17 percent to $495.5 million in the first quarter ended May 1, beating analysts’ estimates of $487.7 million, and the company said it now expects 2016 revenue of $2.31 billion-$2.35 billion, compared with $2.29 billion-$2.34 billion it forecast in March.

However, the retailer’s net income fell 5 percent to $45.3 million, or 33 cents per share. Gross margin slipped to 48.3 percent from 48.6 percent a year earlier.

Excluding items, the company earned 30 cents per share, missing analysts’ average estimate of 31 cents, according to Thomson Reuters I/B/E/S.

(Additional reporting by Amrutha Gayathri in Bengaluru; Editing by Anil D’Silva and Phil Berlowitz)