Lululemon shares plunge on narrowed outlook

The stock price falls 11% in midday trading after the struggling company gives a weak forecast.

By Forbes Digital Dec 12, 2013 1:32PM
Credit: © Andy Clark/Reuters

Caption: A customer enters the Lululemon store in downtown Vancouver, British Columbia November 8, 2013By Samantha Sharf, Forbes Staff

Yoga apparel brand Lululemon (LULU) encourages its customers to live zen, but today shareholders are anything but.

Lululemon Athletica reported third-quarter net income of $66.1 million, or 46 cents per share, beating the Street's 41-cent consensus estimate. At $379.9 million, revenue was also ahead of consensus.

Shares, however, were down nearly 11% to $60.99 in midday trading on a weak forecast.

For the full year, Luluemon is now forecasting around $1.6 billion in revenue and between $1.94 and $1.96 in earning per share, narrowed from previous outlook of $1.94 to $1.97 per share. For the fourth quarter the company expects earnings per share to fall between between 78 cents and 80 cents. Their outlook on revenue is between $535 million and $540 million with flat same store sales.

The flat same-store sales forecast suggests the retailer is having a slow holiday shopping season since same-store sales rose 5% in the third quarter and 7% for the first three quarters of fiscal 2013.

"This so far has been a year of challenges, learning, and growth for Lululemon," said outgoing CEO Christine Day in a statement. "While our outlook for the fourth quarter is being impacted by both macro and execution issues, I believe that the investments we are making in the business combined with the team in place create a strong platform for growth in the years ahead."

Day announced she would be leaving the yoga brand in June, shocking fans and shareholders. The stock tumbled on the news and has not fully recovered even as the market railed in the months since. As of Wednesday night, shares were down 8% year-over-year. Just two days ago the company announced that Laurent Potdevin, president of Toms Shoes, will take Day's place in January.

The company also unveiled that billionaire founder Dennis "Chip" Wilson will step down as chairman of the board by June. Last month he rose eyebrows with a controversial comment about women's bodies causing pairs of Lululemon's black pants to be see through. Michael Case, formerly of Starbucks (SBUX), will replace Wilson. Shareholders weren't zen about that news either; shares were down 2.6% this week prior to the earnings report.

Chris Bertelsen, chief investment officer for Global Financial Private Capital, which has a position in the stock, called this "a kitchen-sink quarter." He notes that growth is strong -- third-quarter revenue was up 20% year over year -- particularly overseas. On the other hand, he says the flat comparable store sales outlook is likely to drive away growth oriented investors. Looking "through rose-colored glasses," Bertelsen said he hopes this will be a case where a company decides to "under-promise and over-deliver."

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