G&M: Lululemon boosts outlook.
Thursday, November 29, 2007
TORONTO — This month's controversy over seaweed-infused fabric has not hurt Lululemon Athletica Inc., the chief executive of the yoga-inspired clothing phenomenon said Thursday.
“We stand behind the integrity of our product and processes, including VitaSea, and I'm pleased to report that we've experienced very few returns and we do not believe the media coverage has negatively impacted our VitaSea sales or our business in general,” Robert Meers told a conference call after Lululemon reported strong quarterly results.
The company's stock price took a brief hit after a Nov. 14 report by the New York Times that a Lululemon shirt made of VitaSea fabric, said to be made partly of seaweed and to release minerals and vitamins into the skin, was indistinguishable from an ordinary cotton T-shirt in laboratory tests.
The shares quickly recovered, and they traded Thursday morning at $42.87, up $2.15 or 5.3 per cent on the session, after Lululemon reported an August-October profit of $7.6-million, up from $1.7-million a year earlier as revenue grew 84 per cent to $66.2-million.
Since its highly sought-after initial public offering in July, Lululemon shares have traded as high as $58.77, up from $26.40 on their opening day of TSX trading.
Management also stretched its profit outlook for the full year Thursday, predicting earnings per share of 40 to 42 cents, up from a previous projection of 30 to 33 cents. Analysts surveyed by Thomson Financial were on average predicting 37 cents per share before Thursday's release.
Third-quarter earnings per share were 11 cents, three cents above the Thomson Financial outlook.
Lululemon is enjoying “continued momentum in the fourth quarter” and expects a festive holiday season as new stores continue to open amid strong demand for a new line of winter outerwear and rapid growth in running apparel and menswear, Mr. Meers told upbeat analysts.
He added that “we have not seen a falloff” in VitaSea, which in any case accounted for only one per cent of sales.
“We as a company will continue to push the innovation in fabric that our customers expect to see from us,” he said. “And the reaction from the customers has been one of support and pleasure with the product that we have brought to market.”
Lululemon's $66.2-million in revenue during the quarter ended Oct. 31 compared with $36-million in the year-ago period. Revenue from corporate-owned stores more than doubled to $59.9-million, with sales at stores open a year or more rising 36 per cent, or 26 per cent adjusted for the strengthening Canadian dollar.
Operating profit was $11.8-million, 17.9 per cent of revenue, up from $4.7-million or 13.1 per cent of revenue.
The company's long-term annual targets include comparable-store percentage sales increases “in the high-single-digit range” and earnings per share growth “in excess of 25 per cent.”
Mr. Meers expects to open 30 to 35 new stores in North America this year as Lululemon expands into new markets, leading with showrooms aimed at local yogis and fitness instructors.
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