Lululemon Athletica Inc. on Monday (Jan. 12) upgraded its net revenue and earnings guidance for the fourth quarter ended Feb. 1. after comparable stores sales came in higher than forecast.
The active wear company boosted its revenue forecast to $595-to-$600 million from $570-to-$585 million and said it now expects comparable sales to grow 6-to-7 percent on a constant dollar basis, compared to the low-single digits. LULU boosted its diluted earnings per share guidance to 71-73 cents, up from 65 to 69 cents.
LULU shares shot up nearly 7 percent on the news, lifting the spirits of executives presenting at the ICR XChange investor conference Monday night.
“What a difference a year makes,” said LULU's outgoing CFO John Currie in a reference to his appearance at the conference a year earlier, when he had to explain why the company had downgraded its guidance for the fourth quarter of 2013. “We really had a tremendous holiday season. We came in with some headwinds in terms of store openings and currency and port disruptions, but we mitigated those to some extent, and strong product assortment, continuation of strong traffic trends that we started seeing in Q3 really allowed us to deliver a better than our expectations for Q4.
The strength was across the board both in women's and in men's and both in stores and on e-commerce and particularly strong in bottoms.
CEO Laurent Potdevin said more consistent flow of product over the last half of 2014 enabled LULU stores to coordinate marketing, branding and promotional efforts with much greater precision and validated investments it has been making to beef up its supply chain since a major recall of the company's top-selling yoga pants sent its stock tumbling in 2013.
“Being able to predict the product coming into the store allowed us to do much better product notification for our guests,” said Potdevin. “It has allowed us to build campaigns that will deliver seamlessly across digital and in stores. And it has allowed us to much better educate our educators in-store so that they could, in turn, educate our guests.”
LULU will continue to invest at an elevated level in 2015 to completes its supply chain initiatives, but expects operating margins to improve in 2016 as that spending tapers off and lower air freight costs and more stable merchandize margins materialize. LULU reported operating margins of 19.4 percent for the quarter ended Nov. 2, 2014, down 490 basis points from a year earlier.
With strong holiday sales and the arrival of new leadership in its retail, brand and product operations, Potdevin said LULU is “really at a time now where we can switch from playing defense to playing offense.”
That will entail shifting more investment dollars toward R&D, product development and a global redesign of the company's website to take advantage of a new CRM system and create more intimate and personalized relationships with customers.
