09/12/2013 08:14 EDT | Updated 11/12/2013 05:12 EST

Lululemon Shares Fall As Company Lowers Outlook


VANCOUVER - Lululemon Athletica Inc. is lowering its 2013 profit and revenue outlook as efforts to improve the quality of its black Luon yoga pants have delayed the delivery of fall products to stores.

The Vancouver-based yoga wear retailer (NASDAQ:LULU) expects earnings to be US$1.94 to US$1.97 per share for 2013, down from the previous estimate of between US$1.96 to US$2.01.

Revenue is expected to be in the range of $1.625 billion to $1.635 billion, down from $1,645 million to $1,665 billion announced in its previous quarterly report.

Lululemon shares were off 6.3 per cent to $63.67 in trading on the Nasdaq Thursday morning.

The company pulled its Luon pants from store shelves this spring because they were found to be see-through. The company blamed the sheerness on a style change and production problems and hired a new team to oversee the making of the pants.

Though feedback to the improved Luon products has been positive and those products have been "flying off the shelves," the company is still feeling the impact of the problems, said CEO Christine Day on a conference call.

Every time a change is made to the design or fabric of a product, it slows the process down. As a result, Lululemon has seen "seasons collapsing" — summer inventory lingering in stores three to three-and-a-half weeks longer than would ordinarily be the case as shipments of fall products are held up.

"For us, that's a short-term pain for the long-term gain on really differentiating ourselves on quality," said Day.

Another ripple effect has been on the sales of tops that are meant to match with black Luon pants, which were unavailable, she added.

Chief financial officer John Currie said the revenue impact from the Luon debacle is expected to be $40 million to $45 million — not as severe as previously thought.

Also Thursday, Lululemon posted better than expected financial results.

Earnings per share during the quarter were $56.5 million compared to $57.2 million.

The earnings per share of 39 cents beat the average analyst estimate of 34 cents on an adjusted basis of 35 cents.

Revenue increased 22 per cent to $344.5 million.

Day announced in June that she intends to step down as CEO once a successor is named. She said discussions are underway with a "several high-calibre candidates" and the list is expected to be narrowed down in the coming months.

On the call, Day said she doesn't know what the next chapter of her professional life will hold, but that she intends to take a break once the reins are passed to her successor.

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