VANCOUVER, B.C. - Lululemon Athletica Inc. (TSX: LLL) said revenues rose 14 per cent in the summer quarter as same-store sales came in better than expected, forcing the clothing retailer to boost its inventory to meet demand.
"We are very encouraged by the overall results we are seeing," Lululemon chief executive Christine Day said Thursday.
The Vancouver-based company's revenue, reported in U.S. currency, rose to $97.7 million from $85.5 million for the same time last year.
Net income fell to $9.2 million or 13 cents per share for the three months ended Aug. 2, down from $11.1 million or 16 cents per share in the year-earlier fiscal second quarter.
Analysts surveyed by Thomson Reuters were looking for revenues of $88 million and earnings of 10 cents per share.
"Our earnings per share of 13 cents was aided by stronger sales, improved gross margin leverage on occupancy and our ability to control our operating costs," Day said during a conference call to discuss the second-quarter results.
"Our hard work on building a leaner operating model is producing stronger flow through as sales momentum returns."
Same-store sales, from locations open a year or more, fell two per cent. The company's had anticipated a decline in the "middle single digits."
Lululemon said the company could have had flat same-store sales in the second quarter, but it sold out of inventory for some of its products.
The company said it is now working on beefing up its product base for the rest of the year, particularly in the fourth quarter.
Lululemon had 115 stores in the quarter compared to 92 stores a year ago, with almost all of the expansion taking place in the United States.
Of the 115 stores, 66 were in the United States, up from 44 a year earlier. One store was added in Australia, bringing the total to six. In Canada, there continued to be 43 stores at the end of the second quarter. All Japanese stores have been closed.
Lululemon expects same-store sales to be flat in the current fiscal third quarter, believing demand could still outstrip supply.
"We did plan the business down for the year, so even chasing just gets us down to a flat situation until Q4," Day said.
The company expects third-quarter revenues to be between $95 million to $100 million and earnings per share to range from 11 to 13 cents per share.
"We love the direction of our business and we have a high degree of confidence in our business model," company founder and current chairman Dennis "Chip" Wilson told investors.
The company launched its e-commerce site in April and on Thursday reported 1.5 million unique visitors to it, and an average order value of around $150.
The company said the site is profitable, in particular because it has lower overhead costs compared to the retail locations.
Liz Dunn, an analyst with Thomas Weisel Partners LLC, said the second-quarter results were "impressive" and grew alongside some other retailers whose products target women.
"I think women were the earliest group of shoppers to shut down and stop spending (in the recession), and it seems women are coming back and shopping again," Dunn said.
She said a rise in consumer confidence is a factor behind more people opening their wallets.
Dunn also said Lululemon acted "completely appropriately" by cutting back its inventory and expansion plans in recent months.
"This was the worst retail environment anyone has ever seen. Conservatism was absolutely the best call," she said.
Now, Dunn believes Lululemon is doing a good job of working to catch up with consumer demand for its products.
Credit Suisse analyst Paul Lejuez agrees the company has done a good job managing through the economic downtown.
"It's tough to knock them in any way from that perspective," he said.
But Lejuez said the price of the stock is expensive right now, trading at 35 times next year's estimates.
"While we are encouraged by the improvement in trends and the initial success of the e-commerce business, we are concerned that LULU will face increased competition in the U.S. market and will struggle to find the right strategy on pricing and positioning," Lejuez said in a note to clients.
He said the company is one of the few growth concepts in retail, but "we believe valuation is stretched."
Lululemon shares closed up a penny to $23.40 on the Toronto Stock Exchange Thursday, after being up five per cent earlier in the day.
The stock was trading at a 52-week low of $5.60 in March and high of $29.64 last September on the TSX.
In New York, Lululemon shares (NASDAQ:LULU) closed up 15 cents to US$21.76.
Lululemon products, which includes clothing for sports such as yoga and running, is aimed at women in their 30s, but appeals to a much wider audience. It also has a men's line, and last week the company said it would launch a separate Ivivva Athletica brand aimed at preteen girls ages six to 12. The concept will be tested with three stores in Vancouver, Victoria, and Calgary starting in November.
Day said the new brand is meant to fill a need in the market, as well as protect the Lululemon brand, but said Thursday the company's focus is still on the Lululemon brand.
"We don't want to be distracted," Day told investors. "We do see it as a viable business opportunity that will be healthy and profitable but our main focus is still Lululemon."
Lululemon said it will close its existing Oqoqo brand store locations in Vancouver and Victoria in September and reopen them as Ivivva stores in November. The Calgary store will be located in an existing Lululemon location, and a new, larger Lululemon store will be opened in the Alberta city.
Lululemon's Oqoqo brand, which includes clothing made with organic and cotton material, will be sold in existing retail locations, the company said.
The announcement of the new preteen line comes as Lululemon tries to expand in a recession-ravaged retail environment.
Earlier this year, the company pulled back its aggressive retail expansion plan and launched its online shopping website earlier than expected.
Lululemon has said it expects to open seven stores in 2009, which is down significantly from the company's previous goal of opening 35 stores annually until it hits a total of 300 locations across North America.
Lululemon has said it plans open about 15 stores next year.
Founded in Vancouver in 1998, the first Lululemon shared its retail space with a yoga studio. The first stand alone retail store opened in the trendy Vancouver neighbourhood of Kitsilano in 2001.