Lululemon shares pummeled after profit-margin warning
By Julie Gordon and Anet Josline Pinto
VANCOUVER/BENGALURU (Reuters) - Shares of Canadian yogawear retailer Lululemon Athletica Inc LULU.O plunged on Wednesday after it warned that profit margins were unlikely to fully recover until 2017 and cut its full-year earnings forecast.
The Vancouver-based company, which reported a lower-than-expected third quarter profit, said it expects margins to improve gradually as it works through supply chain problems and an inventory build-up.
But Canaccord Genuity analyst Camilo Lyon said frustration over margin recapture being pushed back to 2017 was likely driving the sell-off, as shares tumbled 12.7 percent to $45.51.
Lyon said he also had concerns about whether customers were becoming conditioned to wait for discounts, a sign Lululemon could be losing its pricing power.
"If that's the case, it makes this much more of an average retailer versus an above average retailer," he said.
Once a retail darling, Lululemon has never fully recovered from a high-profile yoga pants recall in 2013, and now faces competition from companies like Nike NKE.N and Under Armour UA.N in the lucrative athleisure market.
Lululemon has responded by opening new stores around the globe, expanding its product offerings, and focusing in on menswear and junior lines.
The retailer will hold two more warehouse sales in the fourth quarter to clear out its markdown items and said its search for an executive to oversee its supply chain was well advanced. Continued...