Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
This is the second quarter in the past four where Lululemon (LULU) has disappointed the investor base; that said it remains a crowd favorite due to its growth characteristics – but it has certainly not been a “buy and hold” the past year. The company reported fantasitc 25% same store sales, but a cautious outlook is sinking shares today. A dump in gross margins and higher inventory (which the company has an explanation for) also are areas of potential concern.
Via Reuters:
- Lululemon Athletica Inc said on Thursday inventories rose and sales growth in established stores would slow, sending shares of the trendy yogawear maker tumbling even as it reported another solid rise in quarterly profit. Same-store sales were up 25 percent in its first quarter ended April 29, but even so, any sign that L ululemon’s m uscular growth might falter has spooked markets in recent quarters.
- Lululemon, a rare Canadian retail success story in the U.S. market, inspires fierce brand loyalty, with fan blogs tracking every product launch. The constant-dollar 25 percent same-store sales increase beat the company’s forecast for a gain in the low 20s.
- The Vancouver-based company said comparable store sales, a key measure for retailers, would grow in the “low double digits” in the current quarter.
- Inventory at the end of the first quarter was $107.7 million, compared with $64.4 million at the end of the same quarter last year. Last year, Lulu’s premium yoga pants and other products sold faster than it could restock, holding back overall sales. The company has said repeatedly that its now-higher inventory helps boost sales because it has the goods on hand to meet the specific tastes and size requirements of customers.
- First-quarter net income rose to $46.6 million, or 32 cents a share, from $33.4 million, or 23 cents, a year earlier. Analysts, on average, had expected earnings of 30 cents a share. Net revenue jumped 53 percent to $285.7 million, compared with the average forecast of revenue of $270.9 million.
- Gross profit margin fell to 55.0 percent, from 58.7 percent in the year-earlier quarter. Chief Financial Officer John Currie said on a conference call that margins were hurt in part by higher labor and raw material costs, and more markdowns.
- Currie said a 45.1 percent increase in selling, general and administrative expenses was due in part to higher store labor and operating costs, and higher costs in store “support centers,” including salaries. Poser said those expenses were much higher than he had expected, but said the business is still sound.
- Second-quarter outlook for revenue and earnings came in below expectations. The company forecast net revenue from $273 million to $278 million, compared with an average $289.8 million expected by analysts, according to Thomson Reuters I/B/E/S. It saw earnings from 28 to 30 cents a share, below the average forecast of 33 cents a share
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
