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By
Reuters
Published
Mar 27, 2014
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Lululemon CEO sets sights on accelerating growth; shares surge

By
Reuters
Published
Mar 27, 2014

TORONTO, Canada - Lululemon Athletica new chief executive pledged on Thursday to speed up the yogawear retailer's global expansion while avoiding missteps like 2013's embarrassing recall of its trademark yoga pants, helping boost its once high-flying stock.

Lululemon | Source: REUTERS


Investors, optimistic about Lululemon's long-term growth prospects and reassuring comments made during a conference call, pushed its shares up more than 7.8 percent to C$51.99.

"It's a brand that I think has tremendous transferability across borders and they shouldn't really slow down on that opportunity," said Canaccord Genuity analyst, Camilo Lyon.

Chief Executive Laurent Potdevin, most recently president of trendy footwear brand TOMS Shoes, was brought in with the expectation he would lead Lululemon's expansion into Europe and Asia.

His first major public comments as chief executive helped solidify that view.

"2014 is an investment year with an emphasis on strengthening our foundation, reigniting our product engine and accelerating sustainable and controlled global expansion," he said on a conference call.

"I see significant potential to grow both domestically and internationally."

There were several positive details from the call that indicated the company's consumer base was not being eroded, said Canaccord's Lyon, including new stores sales that were performing above average on a per square foot basis.

Potdevin told analysts its seasonal products were selling at a rate four times faster than anticipated.

Lyon said there was likely also some relief that the guidance was not worse and the bar has been set low enough for the company to outperform as the year progresses.

Lululemon forecast lower-than-expected first-quarter and full-year results as it struggled to recover from the recall in March 2013 of its signature yoga pants that were deemed too see-through.

In the year following the recall, Lululemon's shares slumped some 30 percent.

The retailer, which is facing increased competition, posted an almost flat year-on-year profit for the fourth quarter of 2013 and reported a decrease in comparable stores sales, its first such fall since 2009.

However, its overall results were marginally better than it had warned in January.

The company forecast first-quarter profit of 31 cents to 33 cents per share on revenue of $377 million to $382 million and flat total combined comparable store sales.

Analysts, on average, had estimated first-quarter profit of 38 cents per share on revenue of $389.4 million, according to Thomson Reuters I/B/E/S.

For the 2014 fiscal year, Lululemon forecast profit of $1.80 to $1.90 per share on revenue of $1.77 billion to $1.82 billion, based on a total combined same-store sales increase in the low to mid-single digits in percentage terms.

For the full year, analysts had forecast earnings of $2.14 a share and revenue of $1.82 billion.

POTDEVIN'S MISSION

Potdevin will continue to try to repair Lululemon's image following the recall and also stave off competition. Rival workout gear makers such as Gap Inc's Athleta brand are aiming to take a bite out of Lulu's market share with similar, but slightly more affordable products.

Potdevin took the helm in January following the surprise departure of Christine Day.

Day was lauded for driving the company's blistering growth and transition from a niche player into a major retail force. She was also credited for Lululemon's success in the United States, a market few Canadian retailers have cracked.

For the fourth quarter ended February 2, Lululemon earned $109.7 million, or 75 cents per share, compared to $109.4 million, or 75 cents per share, a year earlier.

Analysts, on average, had expected 72 cents per share.

Net revenue increased 7 percent to $521.0 million.

Overall, its fourth quarter results came in slightly higher than its January forecasts, when it cautioned investors that traffic and sales in January slowed "meaningfully".

Sales at established stores fell by 2 percent on a constant dollar basis in the quarter, the first such decline since 2009. Total comparable sales, including online, rose 4 percent.

During the fourth quarter, the company added seven new stores for a total of 254 stores internationally, including its standalone store for girls, Ivivva Athletica.

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