Lululemon (LULU) Posts 5% Profit Drop, Downbeat Q2 Outlook

On Wednesday, athletic retailer Lululemon Inc. (NASDAQ:LULU) reported its first quarter fiscal 2016 results, and despite a rise in comparable store sales, the company’s profit slipped 5%. The decline in quarterly profit was a result from a 32% increase in selling, general, and administrative expenses.

Excluding non-recurring items, diluted earnings per share came in at $0.30, matching the Zacks Consensus Estimate of $0.30 per share. Total net revenues of $495.5 million increased 17% year-over-year, or 19% on a constant dollar basis, and total comparable sales, which includes comparable store sales and direct to consumer, increased by 6%, or by 8% on a constant dollar basis. Revenues beat the Zacks Consensus Estimate of $488 million.

For Q2, Lululemon expects sales in the range of $505-515 million, same-store sales to increase by mid-single digits on a constant dollar basis, and EPS in the range of $0.36-0.38 per share. Analystswere estimating earnings of $0.39 per share on revenues of $514 million.

Laurent Potdevin, Lululemon's CEO, stated: "We are pleased with our first quarter performance, delivering strong sales results and gross margin that exceeded expectations. We finished the quarter with our inventory levels rebalanced and on track to achieve our goals for the year."

Mr. Potdevin continued: "I'm extremely proud of our teams who have relentlessly built the capabilities and infrastructure necessary to support profitable growth. By continuing to invest in our people and focus on product innovation, we are well on our way to deliver on our five-year plan."

Lululemon has worked hard in the past few years to revive their brand image after recalling some yoga pants in 2013 for being too sheer. The company has also put in effort to boost its men’s and children’s business. Lately, its billionaire founder, Chip Wilson, has not been easy on Lululemon, criticizing the company’s performance and saying it had given up marketplace leadership to competitors like Nike (NYSE:NKE) and Under Armour (NYSE:UA) . Mr. Wilson holds a 15% stake, and said he is advocating for Lululemon’s board to be declassified so the entire board must stand for re-election each year.