March 21, 2013, 4:52 PM

Q4 web sales rise 56% at Lululemon, despite pants problems

Excessively see-through pants force a recall that will dim earnings.

Lead Photo

Transparency can be good and bad.

While those who work hard for a toned physique often like to show it off in chic apparel, most don’t like to give onlookers too much of a show, athletic apparel retailer Lululemon revealed in its fiscal Q4 and full-year earnings report today.

The retailer announced on Monday it had to pull a line of pants made from its own material, called Luon, from its stores after shoppers complained that the fabric was too sheer, including across the rear. Lululemon, No. 162 in the Internet Retailer Top 500 Guide is offering full refunds or exchanges on the pants, which are one of its product staples, but said today that its pants problems may hurt its bottom line in the next few quarters. It forecasts losing between $12 million and $17 million in revenue in Q1 and $57 million to $67 million overall in fiscal 2013 as a result of the recall and pants shortages as it works out the fabric issues with its suppliers.

“We pulled a selection of our black Luon pants from our stores,” says Christine Day, Lululemon CEO. “Delivering the top quality our guests expect is a critical factor in our differentiation in the marketplace. Our proprietary fabric, black Luon, is a very technical and sensitive product to manufacture. We have a long history with our manufacturers and, as we have in the past, we are working closely with them to resolve the current issues. We have a team on site collaborating with them to identify the root cause.”

Despite its derriere dilemma, online sales grew more than 50% year-over year in Q4 for Lululemon.

For the fourth quarter ended Feb. 3, Lululemon reports:

  • Web sales rose 56.3% to $78.3 million compared to $50.1 million for the same period a year earlier. Q4 for fiscal 2012 spanned 14 weeks, while Q4 a year earlier was a week shorter at 13. In that last week web sales totaled $4.2 million, the retailer says. Without those sales, online revenue would have been $74.1 million, an increase of 47.9% from the prior-year quarter.
  • The web accounted 16.1% of net revenue compared to 13.5% of net revenue for the same period a year earlier.
  • Total net revenue rose 31.0% to $485.5 million from $371.5 million for the same period a year earlier. The company did not say what total sales were for week 14 of the quarter, though it did note in reporting comparable-store sales that store sales totaled $18.7 million during that final week.
  • Comparable-store sales increased by 10.0% compared to a year earlier, a lower growth rate than Q4 a year earlier, when they increased 26.0% year over year.
  • Gross profit grew 31.3% to $274.5 million compared to $209.0 for the same period a year earlier. As a percentage of net revenue, gross profit increased to 56.5% for the quarter up from 56.3% in the fourth quarter of fiscal 2011.
  • Income from operations for the quarter increased by 31.4% to $152.6 million compared to $116.1 million a year earlier. Income from operations a percentage of net revenue was 31.4% compared to 31.2% in the fourth quarter of fiscal 2011.
  • Net income increased 48.8% to $109.4 million from $73.9 million.
  • For Q1 offiscal 2013, Lululemon expects net revenue between $333.0 million and $343.0 million. It expects comparable-store sales to increase 5% and 8%.

For the full year, Lululemon reports:

  • Online sales climbed 85.6% to $197.3 million compared to $106.3 million a year earlier. Web sales accounted for 14.4% of net revenue in fiscal 2012 compared to 10.6% of net revenue in fiscal 2011. Fiscal 2012 consisted of 53 weeks while fiscal 2011 consisted of 52 weeks. Without the $4.2 million in the final week of the fiscal year, sales would have increased 81.7% to $193.1 million.
  • Net revenue increased 37.0% to approximately $1.4 billion from about $1.0 billion in fiscal 2011.able-store sales increased by 16.0%, resulting in $2,058 annual sales per square foot in fiscal 2012 for stores open at least a year.
  • Comparable-store sales increased by 16.0%, resulting in $2,058 annual sales per square foot in fiscal 2012 for stores open at least a year. Comparable-store sales and sales per square foot calculations exclude the 53rd week for fiscal 2012.
  • Gross profit grew 34.0% to $762.8 million, up from $569.4 million in fiscal 2011. Gross profit fell as a percentage of net revenue to 55.7% from 56.9% in fiscal 2011.
  • Income from operations increased 31.1% to $376.4 million, from $287.0 million in fiscal 2011. Income from operations decreased as a percentage of net revenue to 27.5% from 28.7% of net revenue in fiscal 2011.
  • Net income of $271.4 million, up 46.7% from $185.0 million in the prior fiscal year.
  • For fiscal 2013, Lululemon forecasts net revenue between $1.615 billion to $1.640 billion.
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