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Lululemon Rises as CEO Says He’ll Speed Up Global Expansion

Bloomberg logoBloomberg 27-03-2014 Lindsey Rupp

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

March 27 (Bloomberg) -- Lululemon Athletica Inc. rose the most in a year and a half after new Chief Executive Officer Laurent Potdevin said he plans to speed up the yoga-wear retailer’s move into new markets around the world.

The shares climbed 6.1 percent to $41.18 at 11:36 a.m. in New York and earlier advanced as much as 9.8 percent for the biggest intraday gain since Sept. 7, 2012. Vancouver-based Lululemon slid 18 percent this year through yesterday.

“I intend to accelerate our global expansion,” Potdevin, who took over for Christine Day in January, said today on his first post-earnings conference call with analysts. “We see clear evidence of demand both in Asia and Europe with several countries ready for stores.”

Lululemon, which got 95 percent of its revenue from the U.S. and Canada in its most recent fiscal year, also can build partnerships to more quickly grow in regions that are too complex or too small for it to have a direct presence, he said.

The retailer will shift its international strategy away from a pattern of first opening showrooms -- smaller locations with limited selections and shorter hours -- before finding the right staff and locations for full, permanent stores. The company will now run those processes at the same time, Potdevin said on the call. Lululemon also hired a general manager for Asia.

Potdevin’s comments come after the retailer reported fourth-quarter results that topped analysts’ estimates while forecasting profit this year that was less than projections.

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 in a statement. Analysts estimated profit of 72 cents a share.

Profit Forecast

Profit per share in the year through January 2015 will be as much as $1.90, the company said. The average of 34 analysts’ projections compiled by Bloomberg was $2.14. The company’s first-quarter sales and earnings forecasts also trailed estimates.

Apparel retailers have struggled recently. First, they were hurt by a holiday season marked by fierce competition and steep discounts intended to lure reluctant shoppers into stores. Then they hit harsh winter weather that kept many consumers at home, damping sales in January and February. L Brands Inc., which owns brands including Victoria’s Secret, and Gap Inc. both issued forecasts that missed analysts’ projections last month.

Getting Better

“Lululemon’s guidance was below expectations but certainly not as bad as some of the other stuff going on out there,” said Howard Tubin, a New York-based analyst for RBC Capital Markets. “Now, you have guidance that reflects a bit of an investment year but shows trends getting better throughout the year.”

He has the equivalent of a buy rating on the shares.

Seasonal items have been very popular among customers, with products selling out four times faster than anticipated, Potdevin said. The retailer will maintain its practice of keeping inventory tight at the same time as it looks to strike a better balance of seasonal and core offerings to meet demand.

“While we don’t mind our guests being hungry for our product, we don’t want them to be starving,” Potdevin said on the call.

Lululemon also is seeking to maintain clothing quality after weaknesses in its inspection 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.

‘Stellar Execution’

“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 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.

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.

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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