* Q2 2011 EPS $0.26 vs $0.15 year earlier
* Net income rose to $38.4 mln from $21.8 mln
* Comparable store sales rose 20 pct
* Shares down 4.2 pct to C$54.63 in Toronto (Adds detail from conference call, updates market reaction) (In U.S. dollars, unless noted)
By Allison Martell and Euan Rocha
TORONTO, Sept 9 (Reuters) - Lululemon Athletica Inc LLL.TO (LULU.O) on Friday said sales gains at established stores would slow in the current quarter, and shares of the yogawear retailer dropped.
The stock weakened even as the Vancouver-based sportswear retailer posted a surge in profit and revenue for the previous three months.
The company - one of the rare Canadian retailers that has enjoyed success in the U.S. market - sees third-quarter sales increases in the low to mid-teens in percentage terms for stores opened at least a year. That’s a comedown from a 20 percent gain for the second quarter ended July 31.
“As always our guidance, our outlook is influenced by what is going on in the macroeconomy - we all read the headlines, said Chief Financial Officer John Currie during a conference call. “Having said that, we’re not saying that we are seeing that in our business, but we are just being cautious.”
Currie also said results for the current third quarter would have to stack up against a strong performance in 2010, making for a difficult comparison.
Lululemon, which has expanded rapidly in Canada, the United States and Australia, has built up an enthusiastic following with its signature yoga pants and free in-store yoga classes. It operated 151 shops at the end of the second quarter, compared with 130 a year earlier.
Jennifer Milan, an analyst with Sterne, Agee and Leach, said she was not particularly concerned about the outlook.
“I think they tend to guide conservatively, and there’s also a lot of macro uncertainty right now so maybe they are being a little bit cautious,” she said.
For the second quarter, net income rose more than expected to $38.4 million, or 26 cents a share, from a year-earlier profit of $21.8 million, or 15 cents.
Analysts on average had forecast earnings of 22 cents a share, according to Thomson Reuters I/B/E/S.
Sales rose nearly 40 percent to $212.3 million.
Lululemon expects earnings per share of 22 to 24 cents in the third quarter. Analysts on average had been forecasting earnings of 24 cents, according to Thomson Reuters I/B/E/S.
Currie also sees pressure on margins in the third quarter, thanks in part to higher labor and raw material costs. Lululemon would not pass on the higher costs to consumers, he said.
He said inventories were still lower than the company would prefer at the beginning of the second quarter. In the past, the retailer had trouble meeting heavy demand for its clothing, holding back sales, especially in the first quarter.
By the end of the second quarter inventories were at $88.9 million, 34 percent higher than in 2010. But some of that apparent improvement reflected higher product costs, not higher quantities, Currie said.
Even so Chief Executive Officer Christine Day said the company was in a good position through the end of the year and into next year.
“We don’t want a repeat of last year,” she said.
The company did raise its outlook for the current fiscal year, after adjusting for a two-for-one stock split announced in March this year.
It expects earnings per share of $1.10 to $1.14 for the 12 months to the end of January. Before the split, it had forecast fiscal 2012 earnings of $2.10 to $2.16.
Shares of Lululemon were down 4.2 percent to C$54.63 Friday morning on the Toronto Stock Exchange. (Editing by Frank McGurty)