Shares of the Canada-based yoga-wear retailer,
Lululemon Athletica Inc
) dropped 3.8% yesterday after the company announced that it will
fail to meet the sales forecast in the first quarter of fiscal
2013, due to a product recall. The stock closed at $65.90 on
Lululemon revealed that owing to some quality issues in
materials used, it is pulling back its black Luon pants and crops
from its stores and website. The company noticed that the
products, which were shipped to its stores on Mar 1 and
thereafter, had some wardrobe malfunction.
Lululemon, which is known for its quality standards, has
therefore announced that the customers, who have purchased Luon
products either from its stores or online after Mar 1, may get a
replace or full refund. Luon products account for approximately
17% of all women's bottoms available at the company's
Management stated that the product recall would significantly
hurt its sales in the first-quarter fiscal 2013 financial
results. Consequently, Lululemon lowered its sales forecast for
the quarter. The company now expects its comparable-store sales
(comps) to increase between 5% and 8%, down from previous
projection of 11%.
As a result, Lululemon also lowered its sales forecast range
to $333-$343 million from its earlier projected range of
$350-$355 million. However, the company is yet to determine the
impact of this product recall on its first-quarter and fiscal
2013 bottom line.
Lululemon, which competes with
New York & Co
Abercrombie & Fitch Co
Ascena Retail Group Inc
), is scheduled to report its fourth-quarter and fiscal 2012
financial results on Mar 21. On the back of high-single-digit
sales growth expectation at comparable stores, the company
anticipates its revenue for the fourth quarter to be at the
higher-end of previously-guided range of $475-$480 million.
On these assumptions, Lululemon expects to post earnings of 74
cents per share in the to-be-reported quarter, which is in line
with the Zacks Consensus Estimate.
We believe that Lululemon has the ability to drive impressive
top and bottom-line growths by focusing on e-Commerce retailing
channel, international expansion and investment in innovating
newer product categories. Further, the company is well positioned
to attract new consumers due to a shift in focus of the consumers
toward a healthy lifestyle.
However, we remain slightly cautious over the stock due to
sluggish comps growth and intense competition. Therefore, this
athletic clothing maker currently holds a Zacks Rank #3
ABERCROMBIE (ANF): Free Stock Analysis Report
ASCENA RETAIL (ASNA): Free Stock Analysis
LULULEMON ATHLT (LULU): Free Stock Analysis
NEW YORK & CO (NWY): Free Stock Analysis
To read this article on Zacks.com click here.