By Solarina Ho

By Solarina Ho

TORONTO (Reuters) - Canadian yoga and leisure apparel retailer Lululemon Athletica Inc on Wednesday reported quarterly profit that beat analysts' forecasts, helped by higher-than-expected gross margins and sales.

Supply chain improvements, a problem area that has plagued the company in recent years, and lower product costs underpinned the company's improved margins and were also driving improvements in the fourth quarter, executives said in an analysts' conference call.

"We continue to be on track with our five-year plan of doubling our revenue and more than doubling our earnings," said chief executive Laurent Potdevin.


"The gross margin expansion is a key element in the earnings recovery that we see today and expect going forward."

Gross margin, or revenue less the cost of goods sold, rose to 51.1 percent, from 46.9 percent a year ago.

Third-quarter sales online and at stores open at least a year rose 7 percent, excluding exchange rate fluctuations. That beat the 5.4 percent increase expected by analysts, according to Consensus Metrix.

The fourth quarter began slowly in November, before picking up around Black Friday and Cyber Monday weekend, executives said, noting strong double-digit same-store sales during the U.S. Thanksgiving holiday period.

For the fourth quarter, the company said it was expecting revenue of $765 million to $785 million and earnings of 96 cents to $1.01 per share.

Lululemon's international success helped turn the Vancouver-based retailer into an investor favorite, but struggles with inventory, embarrassing product recalls, and executive changes in recent years have blemished its once-stellar record.

The company, which plans to open its first three stores in China this month, began by carving out a niche market of expensive women's yoga pants before expanding into other areas. It helped push "athleisure wear" into mainstream fashion and now competes in a crowded market that includes Nike Inc and Under Armour, as well as retailers like Gap Inc.

Net income rose to $68.3 million, or 50 cents per share in the third quarter ended Oct. 30, from $53.2 million, or 38 cents per share, in the prior year. Revenue was $544.4 million, up from $479.7 million.

Analysts were expecting, on average, earnings of 43 cents a share and revenue of $540 million, according to Thomson Reuters I/B/E/S.

Shares, which closed at $59.84, climbed 10 percent in after-market trading.

(Reporting by Solarina Ho in Toronto; Editing by Jim Finkle and James Dalgleish)

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