April 2, 2008 / 12:19 PM / 10 years ago

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 cent 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.

“Despite the challenging retail environment we continue to experience success in both Canada and the United States and we are confident in our abilities to grow our business in 2008,” said CEO Bob Meers on a conference call.

SEAWEED SCANDAL

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,” said 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 joined Lululemon in January as vice-president of retail operations.

Day said in an interview that she will focus on bulking up senior management, North American expansion, and developing strategy for online sales and international growth.

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.

Comparable store sales are seen growing in the low teens, or high single digits on a constant dollar basis.

The Vancouver, British Columbia-based company said it will exceed its long-term annual targets of revenue growth of about 25 percent and earnings per share growth of more than 25 percent.

After an initial decline, Lululemon shares rose about 5 percent to C$33.83 on the Toronto Stock Exchange and to $32.99 on Nasdaq. The stock, which made its debut last year in a much-hyped offering, is off about 25 percent so far this year, weighed down by worries about the U.S. economy.

($1=$1.02 Canadian)

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

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