Lululemon’s Profits Sink Even As Shoppers Spend More At Its Stores

(Photographer: Xaume Olleros/Bloomberg)
(Photographer: Xaume Olleros/Bloomberg)

Lululemon is continuing to pull in the big bucks from shoppers, but it’s not helping lift its bottom line.

The yoga retailer reported a double digit rise in sales during its first quarter on Wednesday and bumped up its forecast for the year, but said profits still fell.

Lululemon has been working to revive its image after a series of mishaps, including a massive recall of sheer pants and unseemly comments made by billionaire founder Chip Wilson thereafter. It’s expanding its product selection and building out its men’s and children’s lines, for instance.

In an indication that new product offerings are taking hold, total revenue rose 17% to $495.5 million, topping analyst estimates of $487.72 million. Sales at existing stores rose by 3% and would’ve risen 5% if not for currency headwinds.

However, profits fell to $45.3 million, or 33 cents per share, down from $47.8 million, or 34 cents per share, in the same period a year ago. Adjusted for certain items, earnings were 30 cents per share and narrowly missed Wall Street analyst estimates of 31 cents per share.

The bottom line was pressured by rising costs, with selling, general and administrative expenses surging 32% to $182 million in the quarter. Lululemon specifically cited unfavorable currency exchange rates, a bigger marketing budget and severance costs.

Last week Wilson slammed the company, saying it had “lost its way” and criticizing its inability to turn rising revenue into higher profits for shareholders. Wilson is no longer involved with the company but remains its largest individual investor.

In prepared remarks, CEO Laurent Potdevin said he was “pleased” with the results and noted that sales were strong and gross margin surpassed expectations.

Looking ahead to the full year, Lululemon is calling for earnings of $2.05 to $2.15 per share on revenue of $2.31 billion to $2.34 billion. Previously Lululemon had projected revenue between $2.29 billion and $2.34 billion.

For the second quarter, Lululemon anticipates earnings of 36 cents to 38 cents per share on revenue of $505 million to $515 million. Analysts were looking for earnings of 39 cents on revenue of $514 million.

Lululemon is facing increasing competition from heavyweights like Nike NKE +0.78% andUnder Armour UA +1.48% and Wilson suggested that new leadership and a new board of directors might be in order. A Lululemon spokesperson told Forbes last week that the company has the right people in place.

“I’m extremely proud of our teams who have relentlessly built the capabilities and infrastructure necessary to support profitable growth,” said Potdevin on Wednesday.

Shares of Lululemon, which are up 7% over the last 12 months, were flat at $68.18 in pre-market trading.

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