Lululemon plans expansion, sees slower sales growth

Thu Dec 6, 2012 3:21pm EST
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By Allison Martell

(Reuters) - Lululemon Athletica Inc LLL.TO said on Thursday it would aggressively expand its chain of yoga shops in Europe and Asia, providing new avenues for growth even as its stellar performance in North America loses some luster.

Shares of the Vancouver-based retailer rose more than 5 percent after the news, which came as a counterweight to Lulu's warning earlier on Thursday that it expected sales growth at established stores to slow sharply in the current quarter. Third-quarter results, however, came in stronger than expected.

Lululemon, with 201 stores in North America and Australia, will soon open its first full store in Asia, selecting Hong Kong for the debut.

Featuring pricey, fashionable athletic clothing for young women, Lulu will also start testing the market in up to 15 countries over the next two years, Chief Executive Christine Day said during a conference call.

"I think that the world is really available to them. I think it's a concept that translates well globally," said Canaccord Genuity analyst Camilo Lyon before Day's comments.

That said, Lulu appears to be headed for a speed bump in its current markets. The company said it expected same-store sales to grow "in the high single digits" in the fourth quarter ending late January - much slower than a 26 percent jump a year earlier. Profit margins also narrowed while inventories rose.

"They will tend to guide very conservatively - they are almost like the Apple of specialty apparel," said Brian Sozzi, chief equities analyst at NBG Productions, unfazed by the outlook. "They beat their guidance pretty nicely today."

Shares of Lululemon were up 5.4 percent in midday trading on the Toronto Stock Exchange, at C$71.74. On Nasdaq, the stock was at $72.24, up 5.3 percent, after falling as much as 4.1 percent in premarket trading following the earnings news.   Continued...