Lululemon Athletica Inc. (NASDAQ:LULU) saw revenue grow 11% but total profits plunge 60% in 2014’s first quarter compared with the same period last year, according to the yoga wear maker’s Q1 results released June 12.
The company lowered its revenue outlook through the remainder of 2014 from its previous projection of US$1.82 billion to between US$1.77 and US$1.8 billion. Shares dropped over 15% on the announcement; as of press time, shares were trading at $37.76 – a total dip of 15.9%.
Total profits were US$19.0 million for the quarter, compared with US$47.3 million in Q1 2013. This drop of US$28.3 million is attributable to a one-time tax adjustment of US$30.9 million that relates to a US$450 million share buyback program that the company also announced the same morning. The adjustment is for the planned repatriation of foreign earnings that the company said will be used to fund this program.
Excluding this adjustment, profit was US$49.9 million – an increase of 5.5% compared with last year.
Lululemon CEO Laurent Potdevin called 2014 a transitional year for the company, in part due to having to play damage control after 2013 saw much-publicized product quality issues related to see-through pants, as well as insensitive comments about women’s bodies by company founder Chip Wilson.
Potdevin said, in spite of this, Q1 results were in line with expectations.
“Sales came in slightly above our guidance and we are pleased that overall gross margins and earnings were achieved with lower markdowns that last year,” he said on a shareholder conference call.
“We knew heading into 2014 that driving sales in the first half of the year would be impacted by a suboptimal product assortment combined with soft traffic plans.”
The company also announced that its chief financial officer, John Currey, will be retiring by the end of the year after being with the company since 2007. The company said it will conduct an executive search to find his replacement.
Lululemon was in the news earlier in the week after Wilson announced he had voted against the re-election of the company’s board members and expressing concerns about the company’s direction.
The company issued a statement in response, saying, “The Lululemon board of directors and management team have been consistently focused on enhancing shareholder value and will continue to take actions to achieve this objective.
“Contrary to Mr. Wilson's assertions, Lululemon’s board members are aligned with the company’s core values and possess the necessary expertise to successfully lead Lululemon forward.”
