Lululemon Slumps as Growth Not Enough to Please Wall Street

(Bloomberg) -- Lululemon Athletica Inc. reported another quarter of double-digit sales growth -- but that wasn’t enough to boost a stock that’s already almost doubled this year. Shares fell in late trading.

• Lululemon sees profit of $2.10 to $2.13 a share in the fourth quarter, below analysts’ estimate of $2.13 a share. Meanwhile, the closely watched metric of comparable-store sales rose 17% on a constant-currency basis in the latest quarter, beating the 14.2% estimate compiled by Consensus Metrix. That represents eight straight quarters of double-digit growth for the measure.

Key Insights

• Despite its 11th consecutive profit beat, the Vancouver-based company is suffering from investors’ expectations for perfection. Citigroup analyst Paul Lejuez warned in October that “the market expects results to be flawless, leaving little room for disappointment.”
• Consumers’ appetite for the brand’s $178 cardigans and $98 yoga pants is growing online, where comparable sales increased 30%, when adjusted to exclude currency effects. Lululemon has revamped some of its websites and is adding others as it expands overseas. But since these sites relatively young, comparisons may be getting tougher going forward.
• Chief Executive Officer Calvin McDonald told analysts he sees significant opportunities to further expand in China after doubling its store base this year. E-commerce grew more than 60% there during the quarter, with a surge in business on Singles Day that surpassed last year’s volume after just 69 minutes, he said.
• Investors may be concerned by the upcoming departure of Chief Operating Officer Stuart Haselden, a key member of management who was in charge of international expansion. The company won’t rush into finding a replacement for Haselden and will seek someone with experience in the Asia-Pacific region, McDonald said.

Market reaction

• Lululemon shares fell as much as 7.8% in late trading, before paring some of the decline. The stock has advanced 92% this year through Wednesday’s close.
• For company statement, click here.

To contact the reporter on this story: Sandrine Rastello in Montreal at srastello@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, Jonathan Roeder, Sally Bakewell

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