March 30, 2016 / 10:18 AM / 3 years ago

Lululemon expects better margins to boost profit this year

(Reuters) - Canadian retailer Lululemon Athletica Inc (LULU.O) said it expected improved margins and sales to drive its earnings growth this year, sending its shares up 10 percent in morning trading.

Yogawear retailer Lululemon Athletica Inc's logo is pictured at its store in downtown Vancouver in this June 11, 2014, file photo. REUTERS/Ben Nelms/Files

The company reported a higher-than-expected quarterly profit on Wednesday, helped by strong sales during the holiday shopping period.

Lululemon, known for its upscale yoga-wear, said it planned to improve margins by reining in costs through a shift to ocean freight from air freight and planning orders better to ensure fewer cancellations.

“We now see our plans for a recovery in profitability coming into sharper focus,” Chief Financial Officer Stuart Haselden said on a post-earnings conference call.

Haselden said the first quarter would mark the last step in Lululemon’s transition to regaining earnings growth as the company works to reduce inventory levels and strengthen supply chain capabilities.

Lululemon reported gross margin of 50.3 percent for the fourth quarter ended Jan. 31, up from 46.9 percent in the previous quarter.

The company, which competes with Nike Inc (NKE.N) and Under Armour Inc (UA.N) in the lucrative athleisure market, said it planned to more than double its earnings by 2020.

Athleisure is a mix of athletic and casual clothing that has grown popular even in formal settings in the United States.

Lululemon reported earnings of 85 cents per share in the quarter, beating analysts’ average estimate of 80 cents, according to Thomson Reuters I/B/E/S.

The company forecast higher net revenue in the range of $2.29 billion-$2.34 billion for the full year, compared with the previous year, saying it expects total comparable sales to increase by a mid-single digit percentage on a constant dollar basis. It expects earnings of $2.05-$2.15 per share.

The retailer reported net revenue of $2.06 billion for the year ended Jan. 31, and earnings per share of $1.89.

Comparable store sales for the fourth quarter rose by 5 percent on a constant dollar basis, beating analysts’ average estimate of 4.70 percent, according to Consensus Metrix.

Net income rose about 6 percent to $117.4 million in the quarter from $110.9 million, or 78 cents per share, a year earlier.

Lululemon shares were up 8.6 percent at $66.58 in late morning trading.

Reporting by Amrutha Gayathri in Bengaluru; Editing by Anupama Dwivedi

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