Shares of Vancouver yoga wear seller Lululemon Athletica Inc. (Nasdaq: LULU) briefly surged 16.8% in early trading June 2 after reporting first quarter earnings and sales that exceeded analyst expectations.
The company also announced that it is restructuring its childrens’ clothing sales channel. That includes closing 40 of 55 stores, which are branded Ivivva and primarily sell activewear for girls.
Seven of the remaining Ivivva stores will be converted to Lululemon-branded locations and the remaining eight will remain branded Ivivva.
All temporary Ivivva locations and all locations that are considered “showrooms” will also close, Lululemon said in a June 1 release. That means that, including showrooms, lululemon will close a total of 67 Ivivva stores by August 20th and focus on e-commerce sales as its main strategy for childrenswear.
“It is anticipated that the closures and restructuring will be substantially complete by the end of the third quarter of fiscal 2017,” the company said in its release.
Lululemon expects to swallow US$50 million to US$60 million in pre-tax costs related to closing the Ivivva locations. It has already recognized about US$17.7 million of that in the first quarter earnings report.
“We are not particularly surprised by the decision to streamline Ivivva ,” said GlobalData Retail managing director Neil Saunders.
“While there is some demand for athletic wear for younger girls, the level and frequency of that demand is insufficient to support a network of expensive stores.”
Despite Lululemon beating analyst expectations for sales and profit, Saunders was not impressed with the company’s growth.
“While total sales continue to advance, mainly thanks to the addition of new stores, the growth rate of 5% is anemic compared to the double-digit increases Lululemon has traditionally posted.”
Lululemon’s first quarter, adjusted earnings per share was US$0.32, or four cents above analysts’ forecast of US$0.28 per share, according to Bloomberg.
Sales, or net revenue, were US$520.31 million. Analysts had expected the company to generate US$513.69 million in sales.
Lululemon forecast for second-quarter sales is to be in the range of US$565 million to US$570 million. That is below analysts’ expectation of being in the range of US$537 million to US$587 million.
The company’s shares rose to US$56.85 in early trading June 2 after closing the previous day's session at US$48.67.