April 3, 2008 / 12:03 AM / in 10 years

Lululemon profit jumps, to shut Japan stores

OTTAWA (Reuters) - Yoga wear retailer Lululemon Athletica LLL.TO LULU.O reported an unexpectedly big jump in fourth-quarter profit on Wednesday as it opened more stores and net revenue doubled.

Lululemon also said it would halt operations in Japan, where it has four stores through a joint venture, because they have consumed “a disproportionate amount of management time” while adding less than 1.5 percent to sales.

The Canadian company, which on Wednesday named insider Christine Day as its next chief executive, shrugged off economic jitters and said it will focus this year on North American expansion and developing online sales.

Lululemon said its profit rose to $14.6 million, or 21 cents a share, in the quarter to February 3, from $887,000, or 1 cent a share, in the year-before period. Excluding a one-time legal expense, it earned 5 cents a share in the year-earlier quarter.

Analysts expected earnings before exceptional items of 19 cents a share, on average, and revenue of $93.2 million.

Revenue doubled to $105.1 million. The company opened 10 new stores and said strong demand resulted in higher freight charges at Christmas as it worked to keep stores stocked.

Sales at stores open at least a year increased by 41 percent. Adjusted to exclude the impact of the strong Canadian dollar, they rose 24 percent.

For the year, Lululemon expects to earn 70 to 72 cents a share, with a 2 cents per share charge for the closures in Japan. Analysts had expected earnings of 72 cents a share.

Revenue is estimated at $370 million to $375 million.

First-quarter earnings are forecast at 11 cents to 12 cents a share, with three new stores seen opening in North America.

“I think people were hoping for higher guidance for 2008,” ThinkPanmure analyst Suzanne Price said in an interview.

“I think it’s extremely conservative...given the way these stores have been performing and that the consumer had been in such a bad place.”


After see-saw trade on Wednesday, Lululemon shares closed down 75 Canadian cents at C$31.35 on the Toronto Stock Exchange and down 77 cents at $30.80 on Nasdaq. The stock, which made its debut last year in a much-hyped offering, is off about 30 percent so far this year, weighed down by worries about the U.S. economy.

Lululemon hit the headlines last year when a Canadian government agency ordered it to remove tags that claimed therapeutic benefits from fabrics containing seaweed.

A New York Times report had highlighted lab tests contradicting the claims, a controversy that the company says drove demand.

“People (were) coming in and asking for the controversial product,” Chief Executive Bob Meers in an interview. “So we’ve actually added Vitasea to more styles, more categories and more products and the sales continue to grow.”

When Meers retires in June he will be replaced by Day, named on Wednesday as president and chief operating officer. Day, a former Starbucks executive, joined Lululemon in January as vice-president of retail operations.

Lululemon plans to open 35 stores in North America this year, entering new markets in Hawaii, Michigan, Connecticut and Eastern Canada. At year’s end, it had 40 stores in Canada, 34 in the United States, and seven in Australia and Japan.

($1=$1.02 Canadian)

Reporting by Susan Taylor and Jonathan Spicer; Editing by Peter Galloway

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