Lululemon Forecast Brings a Cloud (LULU)

Athletic apparel maker Lululemon-Athletica Inc. (NASDAQ: LULU) reported earnings this morning for its second quarter ending on July 31st. The company posted diluted EPS of $0.26, compared with EPS of $0.15 in the same period a year ago and analysts’ consensus estimates of $0.23. Revenue totaled $212.3 million, up from $152.2 million a year ago and also beat expectations of $206.4 million from analysts.

All pretty good, but the third quarter outlook was not very inspiring. Lululemon forecast revenue in the current quarter of $225-$230 million, while analysts were expecting $229.4 million. The company expects diluted EPS of $0.22-$0.24 in the quarter, and analysts were already expecting EPS of $0.24. The adjustment to expectations is costing the stock in pre-open trading this morning, where it is down nearly -4% right before the market opens.

For the full fiscal year, lululemon expects revenue of $930-$950 million, compared with the consensus analyst expectation of $943 million. The company expects full-year EPS of $1.10-$1.14, while expectations were tipped at $1.11.

When lululemon reported first quarter earnings in June (before its 2-for-1 stock split), the company forecast second quarter revenue of $200-$205 million and a pre-split EPS of $0.42-$0.44. Full-year revenues were forecast at $915-$930 million, and pre-split EPS was forecast at $2.10-$2.16.

The revised outlook is stronger, but not a lot stronger and analysts are wary of the soft outlook for holiday sales. The company has seemed immune to the weakening economy. Since coming public in August 2007, the shares are up 312%. Same-store sales for the quarter are up 20%, well below the 31% posted in the second quarter of last year.

In 2010 the company claimed 130 stores at the end of the second quarter, a number which grew to 151 in 2011’s second quarter. That growth is within the 2010 estimate of 20-25 new stores for 2011. So far this year, the company has said nothing about expansion plans.

A back-of-the-envelope calculation notes that revenues grew by $60 million year-over-year. Same-store sales were up 20% in constant dollars, so figure inflation of 2%, which means about $27 million in revenue growth came from the 130 stores open a year ago. The rest, $33 million, came from new stores. Lululemon should be planning to open more stores, but so far no word on that. That could be what’s worrying investors this morning, and taking the share price down.

Paul Ausick