Lululemon beats earnings expectations

Yogawear retailer also generated more revenue than expected

Boarding covers a Lululemon location in Brisbane, Australia that was scheduled to open in December 2016 | Glen Korstrom

Lululemon Athletica Inc. revealed both sales and profit that topped analyst expectations after the closing bell August 31.

The Vancouver-based yogawear manufacturer and retailer (Nasdaq:LULU) generated a fiscal second-quarter profit of US$48.7 million.

That translates into a profit of US$0.36 per share, or, when adjusted to remove non-recurring costs, US$0.39 per share.

Analysts had been expecting the company to generate about US$0.35 per share.

Revenue for the quarter was US$581.1 million, which also topped the average analyst estimate of  $567.8 million.

“Someone, it seems, forgot to inform Lululemon that there is a slowdown in the growth of athleisure,” said GlobalData Retail managing director Neil Saunders.

“Its results stand in direct contrast to those of many other sporting retailers, with both total and comparable sales surging ahead by 13% and 7%, respectively.”

He said that Lululemon’s numbers are a testament to the company’s brand strength, the credibility of its products, and to its constant focus on innovation.

“They have enabled the group to take share in a crowded, competitive marketplace where consumer demand is a little more muted than it once was,” Saunders said.

“The results also underscore the fact that many of the problems faced by players like Dick’s or Foot Locker stem, not solely from the fact that athletic wear demand is more subdued, but because consumers are increasingly switching to buying directly from brands.”

Despite impressive sales, Lululemon’s bottom line slightly disappointed Saunders because the company’s operating margin and net income both fell.

Some of that dip stemmed from asset impairment and resulting costs.

“But even when this is factored out the results were still weaker than the prior year,” he said.

For the current quarter, which ends in November, Lululemon projected that its earnings per share will range between US$0.50 and US$0.52.

Revenue is expected to be somewhere between US$605 million and US$615 million in the third quarter.

That projection is higher than the US$601.3 million that analysts had expected the company to give as forward guidance.

Lululemon shares ended August 31 trading at US$57.55. After hours shares were trading up 5.13% at US$60.50 at 3:54 p.m. Pacific Time.