Shares of Lululemon Athletica (NASDAQ:LULU) plunged on the release of the Vancouver activewear-maker’s second quarter results September 10.
Although net revenue increased 16% to $453 million from $390.7 million in the same period last year, net income fell more than 2% as costs grew.
“The complexity of building a global, scalable infrastructure, while expanding product offering and geographic footprint, has created near-term pressure to gross margins,” company CEO Laurent Potdevin said in a conference call for investors.
“We have enhanced our current teams with additional resources and are laser-focused on these short-term issues.”
Lululemon CFO Stuart Haselden said foreign exchange rates, specifically a weaker dollar in both Canada and Australia, also came into play, leading to a $20.3 million, or 4.5%, drop in revenue.
Another problem, according to financial research firm Bidness Etc, is a change in fashion.
“Lululemon has also been battling with a stark shift in consumer behavior and preference from basic apparel to more elaborate designed clothing and accessories,” Bidness Etc’s George Zack in a blog post.
The company also dealt with a product-design issue at the end of the quarter when 318,000 hoodies were recalled due to concerns over elastic drawstrings injuring customers’ faces.
Diluted earnings per share were $0.34, compared with $0.33 in Q2 2014. Same-store sales increased 6% and direct-to-consumer revenue was up 35%.
"We exceeded our revenue targets for the past quarter, supported by strong performance from both our store and e-commerce channels,” Potdevin.
“As our momentum continues to build, we are excited by the progress made with our international expansion, the launch of our new women's pant wall last week, and successful brandbuilding events occurring around the globe."
However, costs increased as the company expanded globally, adding 20 new net stores during the quarter. These new locations included nine stores in the United States, one in Canada, two in Europe and two in Asia.
Potdevin said its new Hong Kong location is set to become the most productive store in the company and a second Hong Kong location is being planned.
“Looking to the remainder of the year, our team is laser focused on meeting our strategic key goals: grow our global collective, relentlessly innovate our product lines and continue to create transformational experiences for our guests," Potdevin said.
Despite Q2’s falling income, the company has revised its full-year earnings forecast upward, from the previously anticipated range of $1.97-$2.02 billion to $2.025-$2.055 billion. Full year earnings per share are expected to be $1.87-$1.92, up from $1.86-$1.91.
As of 11:30 a.m. September 10, shares of Lululemon were trading at $54.37, down 15%.
