Riding strapping demand for its yoga and running apparel, Lululemon Athletica reported revenues for the second quarter jumped 33.1 percent to $282.6 million while earnings shot up 49.0 percent to $57.2 million, or 39 cents a share – both eclipsing internal forecasts

In early June, the company projected revenues in the quarter to come in the range of $273 million to $278 million on a comp store gain in the low double digits. EPS was expected to range between 28 cents to 30 cents.

Comps in the latest period rose 15 percent. The growth was also boosted by the addition since Q2 of 2011 of 26 net new corporate-owned stores in the U.S. plus 4 reacquired franchise stores, 6 stores in Australia, 2 in New Zealand and 4 Ivviva stores. Direct to consumer revenue vaulted 91 percent to $35.4 million, or 12.5 percent of total revenues. Including e-commerce, comps were up 23 percent on a constant dollar basis.

Slightly weaker Canadian and Australian currency against the U.S. dollar had the effect of decreasing reported revenues by $5.9 million, or 3 percent.

Gross margins in the quarter eroded 240 basis points to 55.1 percent. The decline reflected higher costs associated with inflation in input costs as well as increased innovation and function in its product line and a more normalized rate of markdowns versus last year's low level due to a better, more balanced inventory position. These factors were partially offset by lower use of airfreight due to reduced inventory chase efforts.

SG&A expenses were 30.3 percent of sales against 29.5 percent but increased 36.7 percent in dollars. The dollar increase was due to an increase in store labor and variable costs associated with new stores, showrooms and growth at existing locations; increased cost to support e-commerce; and an increase in expenses at its Store Support Centre associated with the expansion of its business.

Inventory at the end of the quarter was $125.4 million, 41 percent higher than year-ago levels and in line with expected growth.

On the call with analysts, Christine Day, CEO and president, particularly credited Lululemon’s success with its efforts and ability to build communities. Its inaugural SeaWheeze Half Marathon in Vancouver held on August 11 drew a sell-out crowd of over 7,000. That event was followed by its leadership conference, a 3-day gathering of approximately 700 store managers and some of its top educators from its North American stores. A couple of weeks later, Lululemon helped bring the first Wanderlust yoga festival to Canada. The 4-day event in Whistler hosted over 12,000 yogis.

“The opportunity to host and support these events and is a testament to the meaningful relationships that we have built over time,” said Day.

Another example of the extent to which LULU connects with customers and its community was a note from Sheree Waterson, Lululemon’s chief product officer, on the company’s Facebook page acknowledging “color integrity” issues that some customers had complained about in its spring collection. Said Day, “When guests thought like we were not owning up to the issue, we reacted appropriately in our stores to ensure that our guests were heard and their concerns were addressed and shared this with our loyal guests on Facebook.”

The spring line featured color but “probably not as much as detailing and style innovation as we would really have liked to have done in the line. And you'll see that really coming out in the fall and winter drops that are just coming up,” added Day.

Day said that although the chain is seeking to add more “beautiful details” into its core basics and technical athletic apparel, it’s not shifting in any way “to fashion.”

She elaborated, “It's always technical apparel first, and what we believe we do better than anyone in the world is create such beautiful athletic products that it can be used for multipurpose. And it's always that transformability, whether we're doing it in cycling or we're doing it commuting or anything else. What we're always exploring is the way that you make function with beautiful detailings become fashion.”

Overall, a newer growth area is accessories with expansion into underwear, headwear, bags and scarves. But Day said the LULU’s basic core yoga as well as gym/fitness studio business are still seeing a strong response. Said Day, “Those markets are still growing. And we've been able to grow with them or even drive the growth of those segments based on the product. And we still see, particularly in the States, it is a very technical athletic guest that is purchasing the product.”

Regarding expansion, Day said Lululemon’s London showroom “is open and thriving” while a second Hong Kong showroom is expected to open in in September as it continues to build its infrastructure to support expansion into international markets.

The company ended the quarter with 189 total stores versus 151, including franchises a year ago, including 21 stores in Australia and New Zealand. Subsequent to the end of the second quarter in August 2012, Lululemon acquired the remaining 19.7 percent non-controlling interest in Lululemon Australia.

For the third quarter, Lululemon expects revenue to be in the range of $300 million to $305 million based on a comp increase in the low to mid teens on a constant-dollar basis. EPS is expected to land in the range of 34 cents to 36 cents a share for the quarter, up from 26 cents a year ago.

For the full fiscal 2012, the company now expects revenue to be in the range of $1.345 billion to $1.360 billion and EPS in the range of $1.76 to $1.81. Previously, it expected revenue to be in the $1.32 billion to $1.34 billion range with EPS between $1.55 to $1.60.