UPDATE 4-Lululemon sees tough second quarter, shares tumble

Thu Jun 12, 2014 2:43pm EDT
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By Euan Rocha and Allison Martell

TORONTO, June 12 (Reuters) - Lululemon Athletica Inc offered little sign on Thursday that it was pulling out of an extended slump, cutting financial forecasts and warning that second-quarter sales at its once-trendy yogawear shops were off to a weak start.

Its shares dropped more than 15 percent after it said purchases were dropping even as customer traffic was picking up. During a conference call, Chief Executive Laurent Potdevin blamed the decline in part on a "suboptimal" product assortment.

With Thursday's retreat, the shares have dropped more than 40 percent since the company announced an embarrassing recall of overly sheer yoga pants in March 2013. The incident shook up customers and investors in the company just as lower-priced competitors started to crowd into the yogawear market, a business that Lululemon virtually invented.

"We have a core product assortment that has not been evolved as quickly as it should have been," Tara Poseley, Lululemon's new chief product officer, said on the call. She said Lululemon did not offer enough seasonal products, as opposed to all-season "core" products, in the first quarter.

The results came a day after Lululemon's founder and largest shareholder, Dennis "Chip" Wilson, announced he had voted against the election of the company's new chairman as well as another board member. Wilson praised management but said the board is too focused on short-term growth.

For the second quarter, which started on May 5, Lululemon expects no comparable sales growth at all.

Comparable sales edged up 1 percent in the first quarter, but the gain reflected an increase in online business. In established stores, sales dropped 4 percent.   Continued...