Lululemon stock drops after its says Q4 revenue, profit will be lower
The Canadian Press
Published Monday, January 13, 2014 6:42AM EST
Last Updated Monday, January 13, 2014 10:36AM EST
VANCOUVER -- Lululemon Athletica inc. shares fell nearly 14 per cent Monday after the yoga fashion retailer said its sales have dropped off in January and its fourth-quarter results will be lower than expected
"We were on track to deliver on our sales and earnings guidance through the month of December; however, since the beginning of January, we have seen traffic and sales trends decelerate meaningfully," Lululemon's chief financial officer, John Currie, said in a statement Monday.
The Vancouver-based company (Nasdaq:LULU) says it now expects its revenue and profit for the fourth quarter ending Feb. 2, will be significantly lower than its previous estimate before Christmas.
Lululemon's new revenue range is between US$513 million and US$518 million, about $22 million lower than the previous guidance. The company's new estimate for diluted earnings per share is between 71 and 73 cents per share, a reduction of seven cents.
"As we end 2013, we are starting to see the results of the significant investments we made throughout this past year to strengthen and enhance our back-of-house product operations structure," Currie said.
"While we realize that it will require continued investment and time to get to best-in-class status, with our new leadership in place we are very focused on building on this stronger foundation to execute our long-term growth strategies."
Its shares fell $8.21, or 13.8 per cent, to US$51.39 on the Nasdaq market Monday morning, but the stock had been even lower earlier in the morning. Lululemon's stock closed Friday at US$59.60.
The stock also dropped dramatically on Dec. 12 after its previous guidance announcement was below expectations. Lululemon said at that time that it was expecting between US$535 million and US$540 million of revenue and earnings of between 78 and 80 cents US.
Prior to the December guidance for the fourth quarter, which spans the important Christmas and New Year shopping period, Lululemon shares had been trading above $65 per share for most of 2013 and usually between US$70 and US$75 per share.
Lululemon isn't the only retailer facing headwinds, however, as American shoppers deal with an uncertain economic recovery and more U.S. giants like Target move into what's already a competitive space in Canada and put pressure on pricing.
But the Lululemon, which could once do no wrong with its yoga-inspired, high-fashion activewear, has also suffered some specific setbacks of late -- including its handling of a problem with its black Luon pants, which were sometimes so thin they were see-through.
Lululemon said the problems were due to a style change and production issues and moved to fix them, but new complaints emerged later about the quality and durability of the pricey workout gear.
Chief executive Christine Day, who had been seen as a key part of Lululemon's recent success, announced in the summer she would leave.. On Dec. 10, the company hired Laurent Potdevin as Day's successor and said Lululemon founder Chip Wilson would step aside as chairman of the board but remain a director of the company.
Wilson ignited a public relations crisis for the company in November by suggesting to Bloomberg TV that Lululemon's yoga pants don't work well for some women.
His comments about "the rubbing through the thighs," and "how much pressure is there," when some women wear Lululemon pants led critics to accuse Wilson of shaming women's bodies. He later posted a video message online taking responsibility "for all that has occurred."
In December, the retailer warned of a tough holiday season as it worked to win back customers after those missteps, and said same-store sales for the key holiday period would likely be nearly flat even as it reported improved third-quarter earnings.
Still, analysts had been expecting Lululemon's actual results to be slightly above the company's previous guidance on revenue and earnings.
They had estimated 79 cents per share of adjusted earnings and US$542.4 million of revenue, according to Thomson Reuters.