Lululemon Cuts Guidance: From Bad to Worse

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Declining traffic and sales so far this year have prompted Lululemon Athletica Inc. (NASDAQ: LULU) to lower its fiscal fourth-quarter guidance below analysts’ estimates. The yoga-inspired clothing company dropped its earnings per share (EPS) forecast from a range of $0.78 to $0.80 to a new range of $0.71 to $0.83. The new revenue guidance is between $513 million and $518 million, down from the previous range $535 million to $540 million.

The consensus estimates from Thomson Reuters call for $0.79 per share earnings and revenue of $541 million.

Lululemon also said it expects same-store sales to decline by a low- to mid-single digit percentage rate.

John Currie, Lululemon’s chief financial officer, tried to put a positive spin on things:

As we end 2013, we are starting to see the results of the significant investments we made throughout this past year to strengthen and enhance our back-of-house product operations structure. While we realize that it will require continued investment and time to get to best-in-class status, with our new leadership in place we are very focused on building on this stronger foundation to execute our long-term growth strategies.

Third-quarter results did beat consensus estimates, but investors were not pleased with the fourth-quarter guidance. And they are not likely to be any more happy now that guidance has dropped even further. Shares were down more than 7% in Monday premarket trading, to $54.99 in a 52-week range of $57.01 to $82.50.

Lululemon was once the only game in town for yoga wear, but now it faces being squeezed out of the market by larger competitors Nike Inc. (NYSE: NKE) and Under Armour Inc. (NYSE: UA). It also struggles with its own past gaffes, such as the infamous see-through yoga pants. The once promising retailer even made our list of the 10 most hated companies in America.

The company is expected to report its fourth-quarter financial results in late March. If things continue on their present course, the report will not be pretty.

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