Lululemon Athletica (
) has built a reputation for delivering consistently strong
financial growth, and the clothier added to that reputation
Friday with better-than-expected second-quarter earnings.
The designer of high-end yoga and athletic apparel posted Q2
profit of 34 cents a share, up 31% from the prior year and 3
cents above analysts' views. The bottom line benefited from a
lowered tax rate based on early-quarter adjustments.
Revenue for the quarter rose 33% from a year earlier to $282.6
million, matching estimates. Same-store sales gained 15%.
Lululemon's stock price spiked 10% to a four-month high
intraday before closing up 12.4% to 77.14. Shares have risen more
than 40% since the beginning of August. They have more than
quadrupled over the last two years.
"We continue to strive for the right balance between strong
growth and maintaining our market leader focus on execution,
innovation and investments in infrastructure and while doing so
delivered another strong quarter," Lululemon Chief Executive
Christine Day said in a statement.
The company's 31% earnings growth rate was actually the
slowest quarterly rate in three years. It had grown profit at
least 50% the previous 10 quarters. Sales have risen at least 30%
over the last dozen quarters.
Not A Fad
That kind of consistency has helped calm worries that
Lululemon is little more than a hot fashion fad. Defenders say
the company's success is more the result of strong operations and
"Our (Q2) store checks revealed frequent new product drops
that helped maintain strong traffic trends and drive sales," D.A.
Davidson analyst Andrew Burns noted in a recent report. "New
bolder colors and unique prints are helping to keep the
merchandise mix exciting. Prints, including dots, mirage and
beachy floral, were an excellent contrast to the core solid color
On the design side, Lululemon has gained renown for its
innovative use of fabrics and technology. Its Luon fabric is
designed to wick away moisture, move with the body and reduce
irritation. Its Silverescent brand incorporates silver directly
into the fabric to reduce odors.
The popularity of these and other brands has helped Lululemon
become one of the fastest-growing names in the specialty retail
The company ended last quarter with 189 stores in North
America and Australia, up from 174 at the beginning of the
Analysts figure the number of stores can eventually grow to
more than 600 -- half in North America, and half overseas.
For now, the vast majority of its stores are located in the
U.S. and Canada. But earlier this year, Lululemon opened
showrooms in London and Hong Kong. Other likely international
growth markets include Japan, Australia, New Zealand and Western
In North America, much of Lululemon's growth is expected to
come from outside its core urban markets such as New York, Los
Angeles, Chicago and Boston.
Meanwhile, Lululemon continues to grow its online sales.
Direct-to-consumer revenue rose 91% from the previous year to
$35.4 million, or 12.5% of the total. That was up from 8.8% of
the total during the second quarter of 2011.
Lululemon guided third-quarter earnings of 34 cents to 36
cents a share vs. analysts forecasts for 33 cents. It sees Q3
revenue of $300 million to $305 million, with same-store sales in
the low- to mid-teens.
The company also raised its full-year earnings guidance to a
range of $1.76 to $1.81 a share from prior guidance of $1.55 to
$1.60. It forecast full-year revenue of $1.35 billion to $1.36
billion vs. prior guidance of $1.32 billion to $1.34 billion.
"Our store checks in August suggest an early fall emphasis on
outerwear, which appears to have a greater presence in stores
compared to the third quarter of 2011," analyst Burns noted.
Lululemon might also see increased competition in coming
quarters. The company competes against some of the best-known and
most successful names in apparel, includingUnder Armour (
),Gap (GAP),Nike (
) andPVH (
None of its rivals has managed to match Lululemon's success at
the higher end of the athletic apparel market, analysts say.
But that hasn't stopped a growing number of companies from
trying to get a bigger piece of the market by offering lower
prices on similar designs.
CEO Day addressed the prospect of rising competition on a
conference call with analysts Friday, saying "while others may
try to mimic parts of our business, it is impossible to copy a
Lululemon is also making it hard to copy its styles. In August
it filed a patent lawsuit claiming PVH's Calvin Klein brand and
manufacturerG-III Apparel (
) ran afoul of three patents on the design of its yoga pants.
"When we see attempts to mirror our product we will take the
necessary steps to protect our assets," Day said on the