BRITISH COLUMBIA

Lululemon to continue global expansion in yoga and running apparel

09/07/2012 07:31 EDT | Updated 11/07/2012 05:12 EST
Lululemon Athletica Inc. plans to continue expansion into more international markets with its yoga and running apparel and won't shift its brand to fashion wear, CEO Christine Day said Friday.

"Looking ahead, we are excited about the opportunity to bring Lululemon to other communities around the globe and are continuing our steady foray into the international market," Day said after the company reported a big increase in quarterly profit.

Vancouver-based Lululemon plans to open 35 corporate-owned stores plus two outlets in fiscal 2012, while noting that its e-commerce business is growing rapidly as well.

Shares in Lululemon (TSX:LLL) shot up 8.6 cent, gaining $5.77, to reach $73.16 per share in midday trading Friday on the Toronto Stock Exchange.

Day said Lululemon's London showroom has opened and a second Hong Kong showroom is expect to open in a month.

Lululemon already operates in Canada, the United States and Asia. Day didn't name any specific locations but said expansion will be through "direct control and ownership where it makes sense."

While the company's clothing has wide appeal, Day said Lululemon will remain committed to athletic apparel.

"I want to be really clear — we aren't shifting the brand to fashion," she told analysts on a conference call to discuss the second-quarter results.

"It's always technical apparel first. What we believe we do better than anyone in the world is create such a beautiful athletic product that it can be used for multipurpose."

Day also said that Lululemon won't expand beyond size 12 into larger sizes for its apparel because the company doesn't physically have the space in its stores.

In its second-quarter results, Lululemon said net earnings were $57.2 million or 39 cents per share in the three months ended July 29. That compared with net earnings of $38.4 million or 26 cents per share in the second quarter of fiscal 2011.

The boost in profit came as Lululemon reported revenue up 33 per cent in the period to $282.6 million from $212.3 million in the same quarter of fiscal 2011.

Comparable store sales increased 15 per cent on a constant dollar basis.

Lululemon had been projecting net revenue would come in the range of $273 million to $278 million for the quarter, below the $289.8 million projected by analysts, according to Thomson Reuters.

In its update outlook for the remainder of the year, Lululemon said its fiscal third quarter should bring revenue in the range of $300 million to $305 million, based on a comparable-store sales percentage increase in the low- to mid-teens on a constant-dollar basis.

Diluted earnings per share are forecast to be in the range of 34 to 36 cents.

For the full fiscal 2012 year, it now expects net revenue to be in the range of $1.345 billion to $1.360 billion and diluted earnings per share in the range of $1.76 to $1.81. That's up from previous guidance of $1.3 billion of revenue and earnings of between $1.55 and $1.60 per share.

RBC Capital Markets analyst Tal Woolley said he continues to view Lululemon's operating performance as strong.

"These operating numbers continue to outclass peers in a challenging market," Woolley said in a research note.

Meanwhile, Day said Lululemon has taken steps to protect itself from copycats.

The company is suing Calvin Klein Inc. for patent infringement, accusing the designer of copying a waistband used on its popular body-hugging pants

Lululemon has said that Calvin Klein — one of the world's most famous designers — sells pants under its "Performance'' brand that include the same waistband design elements and pant style, all of which are covered by the Vancouver company's patents.

"In some respects this is a tremendous compliment. However, while others may to try to mimic parts of our business, it is impossible to copy a personality," Day said.

Lululemon opened its first store in 1998 in Vancouver and has expanded to 137 stores in the past decade.

The popularity of Lululemon yoga and run apparel is already well-established in Canada and is growing south of the border — a phenomenon that has been reflected in quarterly results that had soared past expectations for more than a year.

But that has also created supply problems in its stores, where its body hugging pants, shorts and tops fly off the shelves faster than they can be restocked.