Lululemon 4Q Net Climbs 48%, Pants Recall to Hit Profits


Despite a massive yoga-pants recall that is expected to cut into its bottom line later this year, Lululemon (NASDAQ:LULU) revealed stronger-than-expected fourth-quarter earnings on Thursday as sales gained traction across its fleet of new and more established stores.

The yoga apparel retailer, however, warned that a recall of Luon pants earlier this week due to a manufacturing glitch that caused them to be far sheerer than Lululemon's specifications, is expected to have a "significant impact" on current-quarter and full-year earnings.

Lululemon projects same-store sales growing in the range of 5% to 8% in the first quarter, below an earlier view of 11%, and sees earnings between 28 to 30 cents a share, below average estimates of 40 cents.

For the full-year, it predicts EPS between $1.95 to $1.99, short of the $2.17 consensus view.

In its most recent quarter, the Vancouver-based athletic apparel retailer reported a 48% rise in net income to $109.4 million, or 75 cents a share, from $73.5 million, or 51 cents, a year ago. The results topped average analyst estimates in a Thomson Reuters poll by a penny.

Same-store sales, a measurement of sales at stores open longer than a year, edged up 10%.

Revenue for the three months ended Feb. 3, which benefited from an extra week, increased 31% to $485.5 million from $371.5 million a year ago, topping the Street’s view of $482.1 million.

"The fundamentals of our business are strong, we delivered excellent results in 2012, and we plan to continue to earn the loyalty of our customers and shareholders every day going forward,” Lululemon CEO Christine Day said in a statement.

Shares of Lululemon edged up about 1% to $64.50 early Thursday. They are down about 16% from the beginning of this year.

Lululemon called Luon pants a “very technical and sensitive product to manufacture” and said it is working closely with its manufacturer to resolve the issue, including putting a team on site to collaborate with them to find the root cause of the production misstep.

The company, which also faced criticism last year regarding dye bleeding in some of its brightly-colored shirts, said it recently added new leadership to its quality control, liaison office and its commercialization and development teams.