Lululemon sales to slow, plans Asia, Europe expansion

(Reuters) - Yogawear chain Lululemon Athletica Inc said Thursday it would expand aggressively in Europe and Asia, giving it new avenues for growth even as its stellar performance in North America loses some luster.

The news came as Lululemon reported third-quarter earnings which beat analysts' expectations but forecast a sharp deceleration in same-store sales growth in the fourth quarter.

The company, which has 201 stores in North America and Australia, will soon open its first full store in Asia in Hong Kong, and will start testing the market in up to 15 countries over the next two years, Chief Executive Christine Day said on a conference call with analysts and investors.

The Vancouver-based retailer said it expected sales in established stores, an important measure for retailers, to grow "in the high single digits" in the fourth quarter. That would be significantly slower than a 26-percent jump in same-store sales in the fourth quarter of last year.

"The third quarter was a great quarter. The disappointment is where they came in for the fourth quarter guidance," said Canaccord Genuity analyst Camilo Lyon.

Shares of Lululemon were up 2.7 percent in midday trading on the Toronto Stock Exchange, at C$69.90. On Nasdaq, the stock was at $70.65, up 3 percent, after falling as much as 4.1 percent in premarket trading following the earnings news.

INTERNATIONAL HOPES

The company, which focuses on pricey, fashionable athletic clothing for young women, has posted robust growth in recent years, thanks to its push into the United States.

The potential for a repeat of this success in Europe and Asia has underpinned analysts' optimism, even though Lulu shares trade at a steep multiple to its earnings.

"I think that the world is really available to them. I think it's a concept that translates well globally," said Canaccord Genuity analyst Camilo Lyon before Day's comments.

Lululemon tends to move slowly in new markets, recruiting "ambassadors" - local fitness instructors and athletes - to promote the brand, and running free yoga classes out of a showroom before committing to a full store.

It uses its showrooms - small stores with limited product and opening hours - to test new markets.

"Based on the success of both Hong Kong showrooms, we are actively looking to secure real estate for a store in that market," Day said.

The company plans to open a second showroom in London next year, as well as more showrooms elsewhere in Europe and Asia, "pre-seeding" in up to 15 markets over the next two years.

TEPID OUTLOOK

Net income for the third quarter ended October 28, rose to $57.3 million, or 39 cents a share, from $38.8 million, or 27 cents a share, a year earlier. Analysts, on average, had expected 37 cents a share.

Net revenue grew 37 percent to $316.5 million, ahead of the average analysts' forecast of $305.3 million.

For the fourth quarter, Lulu expects revenue of $475 million to $480 million. Analysts, on average, forecast $490.5 million, according to Thomson Reuters I/B/E/S. The company sees earnings per share of 71 to 73 cents, below the average estimate of 75 cents.

Canaccord's Lyon, who recently placed a "buy" rating on Lululemon, said the company's outlook for sales growth was conservative, and that inventory, up 27 percent over the previous year, had lagged sales growth of 37 percent.

Lulu said inventory was $164.7 million at the end of the quarter.

Gross profit margin fell to 55.4 percent of revenue from 55.8 percent last year, and operating margin slipped to 25.5 percent from 25.9 percent.

(Editing by John Wallace and Bernadette Baum)

Source: http://news.yahoo.com/lululemon-profit-rises-higher-sales-122812005--finance.html

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