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Lululemon Forecast Trails Estimates as Delays Hurt Sales

Bloomberg logoBloomberg 27-03-2014 Lindsey Rupp

(Updates with analyst’s comment in fourth paragraph.)

March 27 (Bloomberg) -- Lululemon Athletica Inc., the yoga- wear retailer that got a new chief executive officer this year, forecast profit that trailed analysts’ estimates as it works to fix production issues that slowed clothing deliveries and weighed on sales.

Profit per share in the year through January 2015 will be $1.80 to $1.90, Vancouver-based Lululemon said today in a statement. The average of 34 analysts’ projections compiled by Bloomberg was $2.14.

Laurent Potdevin, who replaced Christine Day as CEO in January, is seeking to maintain clothing quality after weaknesses in its quality-control processes forced it to pull one of its most popular styles of pants from shelves last year. The incident prompted Lululemon to add more product tests that have slowed deliveries and damped sales growth.

“The product and supply chain issues have been plaguing the company for the past year,” Corinna Freedman, an analyst at Wedbush Securities in New York, said in a phone interview. “It is an extremely competitive landscape, and operating at that premium price point is going to require stellar execution.”

Freedman has the equivalent of a hold rating on the shares.

Lululemon rose 1.2 percent to $48.80 at 9:01 a.m. in New York, before the market opened. The shares slid 18 percent this year through yesterday, compared with a 0.2 percent gain in the Standard & Poor’s 500 Index.

Revenue in the current fiscal year will be $1.77 billion to $1.82 billion, the company said. Analysts estimated $1.82 billion, on average.

‘Investment Year’

This year will be “an investment year with an emphasis on strengthening our foundation, reigniting our product engine, and accelerating sustainable and controlled global expansion,” Potdevin said in the statement.

Net income in the quarter ended Feb. 2 was little changed at $109.7 million, or 75 cents a share, compared with $109.4 million, or 75 cents, a year earlier, Lululemon said today. Analysts estimated profit of 72 cents a share.

Lululemon has had a tumultuous year. Around this time in 2013, the company said it would recall the black Luon yoga pants because they became too transparent when customers bent over. About two weeks after the recall, Lululemon said Chief Product Officer Sheree Waterson was stepping down. Two months later, Day, 52, announced plans to retire.

The company named Tara Poseley, who had worked at Kmart and Bebe Stores Inc., as product chief in October, and said in December that Potdevin would take over as CEO. That same month, Lululemon founder Chip Wilson said he would step down as chairman before the annual meeting in June.

New CEO

Potdevin, 46, was most recently president of TOMS Shoes Inc., the company that gives a pair of shoes to a needy child for each pair it sells. Before that, he spent five years as CEO of Burton Snowboards.

Lululemon has been working to improve its supply chain and adding scrutiny to ensure products meet quality standards. Increased quality checks delayed the delivery of new apparel and slowed sales in the third and fourth quarters, Chief Financial Officer John Currie said on a conference call Dec. 12. The lag affected popular seasonal items, he said.

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Kevin Orland, John Lear

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