Mar 17, 2011
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Lululemon sees soaring demand, pressure on inventory

Mar 17, 2011

March 17 - Lululemon Athletica Inc posted a higher quarterly profit on Thursday, but said it was unable to meet the soaring demand for its yoga and activewear gear in the current period.

Lululemon store front at Tysons Corner in Virginia, USA

U.S.-listed shares of the specialty clothier, which expects cost pressures in 2011, initially dropped 6 percent in trading before the opening bell, but later recovered somewhat.

Phenomenal demand for Lululemon's products in the holiday season, contributing to a big beat in the fourth quarter ended Jan. 30.

But the demand has put pressure on the company's inventory.

"The inventory is lean. But that's a high quality problem to have," ThinkEquity analyst Christian Buss said.

Lululemon has had to spend more on air freight to boost stocks at stores, and analysts expect it to invest more on technological and management systems to cope with the growth.

Lululemon store front in Cow Hollow, San Francisco, USA

"I'm optimistic that (the inventory situation) will be largely rectified as we exit the first quarter," William Blair analyst Sharon Zackfia said.

"It may be dampening results somewhat, but they're still putting up some of the best sales results in all of retail," she said.

After blazing a trail in the Canadian yogawear category, Lululemon has moved aggressively south of the border, where it now operates 82 stores. That compares with 44 in the much smaller Canadian market.

The company, whose rivals include Nike, Adidas and Under Armour, said it plans to accelerate its store and e-commerce channel growth in 2011.

Lululemon, whose popular premium-priced apparel is known for a combination of fashion and function, is benefiting from the larger trend of people seeking active and healthier lifestyles in an improving economy.

Lululemon store front at the Chinook shopping centre in Alberta, Canada

For the first quarter, the company forecast earnings of 36 cents to 38 cents a share, compared with the analysts' average forecast of 36 cents.

But its revenue outlook of $175 million to $180 million fell short of analysts' expectations.

For the year, Lululemon gave a profit outlook that was ahead of market estimates. The lower end of its revenue outlook is below expectations.

Earnings for the fourth quarter rose to $55 million, or 76 cents a share, from $28.5 million, or 40 cents a share, a year earlier.

Excluding items, earnings were 64 cents a share. Analysts on average had forecast 57 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 53 percent to $245.4 million, beating analysts' expectations of $239.3 million.

Sales at stores open for at least a year, a key measure for retailers, rose 28 percent.

The stock was down 1.9 percent at $77.81 in trading before the market opened.

(Reporting by S. John Tilak; Editing by Lisa Von Ahn, Dave Zimmerman)

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