Lululemon says it is 'humbled' by missteps, looks to grow

Lululemon Athletica Inc. said Thursday it had been humbled by recent missteps and would look to grow and strengthen going forward, after reporting steady profits for the fourth quarter.

"As we move into 2014, we are reflecting on our learnings with humility, and are entirely focused on our future," said chief executive Laurent Potdevin.

"2014 is an investment year with an emphasis on strengthening our foundation, reigniting our product engine, and accelerating sustainable and controlled global expansion."

The Vancouver-based company, which is known for its yoga wear, reported net income of $109.7 million in the 13 weeks ended Feb. 2, compared to profits of $109.4 million in the same period a year earlier, which included an additional week.

Revenue increased seven per cent to $521 million from $485.5 million.

Earnings per share was steady at 75 cents, beating analyst expectations of its revised guidance by three cents, according to data compiled by Thomson Reuters.

Lululemon unexpectedly lowered its fourth-quarter profit outlook in January, pulling back its diluted earnings per share forecast by seven cents to a range of 71 to 73 cents per share.

The company had warned that while it was on track to deliver on its sales and earnings guidance through December, it had seen traffic and sales trends "decelerate meaningfully" since the beginning of January.

Recovering from setbacks

In addition to headwinds facing all retailers, Lululemon has also had to grapple with the fallout of several specific setbacks, including its handling of a problem with its black Luon pants, the fabric of which was sometimes so thin that the pants were see-through. Even after the company moved to fix the problem, new complaints emerged about the quality and durability of the pricey workout gear.

Founder Chip Wilson also triggered severe backlash after suggesting to Bloomberg TV in November that Lululemon's yoga pants didn't fit well on some women. He later posted a video message online taking responsibility "for all that has occurred" and said he would step aside as chairman of the board but remain a director of the company.

Analysts have expressed concern over how long the company's troubles would last, and suggested the days of Lululemon being known as the stock that could do no wrong may be behind it.

But on Thursday, Potdevin emphasized the company's distinct culture and the value of its "technical beautiful product," saying it will leverage those strengths to improve its relationship to customers.

"The emotional connection that Lululemon creates is at the heart of what we stand for, and we are being relentless in our commitment to delivering a distinct and authentic experience that is unlike any other."

Going forward, Lululemon said it expected net revenue to be in the range of $377 million to $382 million for the first quarter of 2014, based on flat total combined comparable sales. Earnings per share are expected to be in the range of 31 cents to 33 cents.

For the 2014 financial year, the company said it expects net revenue to be in the range of $1.77 billion to $1.82 billion based, while diluted earnings per share are expected to be in the range of $1.80 to $1.90 for the full year.

Shares of the company were down four cents to $48.19 in premarket trading in New York.