Lululemon surges on earnings beat

The company cites an 'emotional connection' with customers, ana analysts say recent snafus have done little to hurt sales.

By Forbes Digital Mar 27, 2014 5:50PM
Credit: © Andy Clark/Reuters

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

Yoga-apparel retailer Lululemon (LULU) is seeing life imitate art -- or at least, a yoga class that makes participants move up and down: after dipping low in the morning's pre-market trading session, its stock surged Thursday action on the heels of an earnings beat and a solid belief that an "emotional connection" with the brand will help keep customers around.

If the company was hoping to keep its problems in 2013 -- see: the company's too-sheer pants saga and a (now former) chairman who had trouble keeping his foot out of his mouth -- it's already off on the right foot.

Lululemon reported $521 million revenue for the fourth quarter of 2013, $4 million higher than the analyst consensus of $517 million and a 7 percent increase over the same period in 2012.

While this figure is also higher than the revised guidance the company put forth in January -- when it said revenue would fall between $513 million and $518 million -- the results are lower than its original guidance of $535 million to $540 million. Fourth-quarter net income came in at $109.7 million, resulting in earnings of 75 cents per share, a figure that both beats the Street consensus of 72 cents per share and comes in above Lululemon's January guidance of 71 cents to 73 cents per share. However, this profit is roughly flat compared to the same time in 2012 and is below the company’s original earnings guidance of 78 cents to 80 cents per share.

Lululemon's fourth quarter comparable store sales decreased 2 percent on a constant-dollar basis; including direct-to-consumer sales, the company reported a 4 percent comparable store sales increase.

On a full-year basis, Lululemon reported $1.6 billion in 2013 revenue, a 16 percent increase over 2012's $1.4 billion in revenue. Full-year net income came in at $279.5 million, $8 million higher than 2012's net income and resulting in a profit of $1.91 per share. Full-year 2013 comparable store sales increased 4 percent.

"As we move into 2014, we are reflecting on our learnings with humility, and are entirely focused on our future," Laurent Potdevin, former president of "one for one" social enterprise Toms Shoes and Lululemon's newly-minted CEO, said in a statement Thursday morning, adding that 2014 will be an investment year with an emphasis on strengthening the company’s foundation, reigniting its product engine and accelerating sustainable global expansion.

"Lululemon's magic has been built by creating technical beautiful product and sharing our distinct culture with our communities," Potdevin continued. "The emotional connection that Lululemon creates is at the heart of what we stand for, and we are being relentless in our commitment to delivering a distinct and authentic experience that is unlike any other."

Though the words "emotional connection" might be language more appropriate for a yoga class than a company producing popular yoga pants, some research indicates that Potdevin's holistic views might not be so far off the mark. "Based on our survey work, we do not believe the brand has suffered meaningfully due to last year's sheer pant issue or PR snafus," said RBC Capital Markets analyst Howard Tubin in a note earlier this week. "We believe that the customers perception of garment quality has been consistent over the prior 2 years and future purchase intentions are intact."

Even so, this "magic and "emotional connection" might not be enough to boost Lululemon's 2014 earnings. The company said it expects its first quarter comparable store sales to be flat, resulting in net revenue somewhere in the range of $377 million to $382 million and earnings to fall somewhere between 31 cents and 33 cents per share. On a full-year basis, Lululemon is forecasting 2014 net revenue in the range of $1.77 billion to $1.82 billion, with full-year earnings falling between $1.80 and $1.90 per share. Analysts were expecting a forecast closer to $2.14 per share.

As investors processed the various pieces of news within Lululemon's earnings report -- profit higher than expected! Outlook lower! -- the stock waffled in pre-market trading Thursday morning, first dipping more than 2 percent but slowly recovering as the morning wore on. It went on to open at $50.02, up from Wednesday's $48.23 close, and popped more than 9 percent; it closed with a 6.2 percent gain. Year-to-date, however, the picture isn't as pretty, as the stock as taken a 17.7 percent hit in 2014 trading -- and there's a chance that Thursday's bright spot could be an exception rather than a sign of consistently sunnier days ahead.

"There's just been a handful of pockets of strength, but the underlying trend weak," Matthew Jacobs, a retail analyst with ITG Investment Research, said in a phone interview Thursday morning. "They certainly spearheaded the category -- the fashionable/athletic/luxury category– and now it's becoming more competitive. There's Under Armour, Gap with Athelta, and I think [Lulu is] losing share, one organically and two because of some of the things they've done over the past year," he said, noting the sheer pants scandal and the subsequent verbal blunders by founder Chip Wilson. "I think there is a challenge here and I think that's why the stock has been down."

More on Forbes
Tags: LULU
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

118
118 rated 1
270
270 rated 2
472
472 rated 3
714
714 rated 4
624
624 rated 5
608
608 rated 6
623
623 rated 7
445
445 rated 8
319
319 rated 9
125
125 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
BIDUBAIDU Inc10
BMYBRISTOL-MYERS SQUIBB CO.10
CELGCELGENE CORP10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.