Lululemon Earnings Rollercoaster Sets a Lower Bar

Same-store sales fell 2% year-over-year in the quarter, and operating income as a percentage of net income slipped from 31.4% a year ago to 29.6% this year.

For the full year, EPS totaled $1.91 on revenues of $1.6 billion, compared with year-ago EPS of $1.85 on revenues of $1.4 billion. Consensus estimates called for EPS of $1.89 on revenues of $1.59 billion.

For the first quarter of 2014 the company guided EPS at a range of $0.31 to $0.33 on revenues in the range of $377 million to $382 million. The consensus estimate called for revenues of $0.38 on revenues of $389.39 million. For the full 2014 fiscal year the company guided EPS in a range of $1.80 to $1.90 on revenues of $1.770 billion to $1.820, compared with the consensus estimates for EPS of $2.14 on revenues of $1.82 billion.

Before this report, Lululemon stock traded at more than 22 times expected 2014 earnings. For the following fiscal year, the forward multiple is nearly 28. That is roughly equal to the multiple for Nike Inc. (NYSE: NKE) and well below the 49 multiple for Under Armour Inc. (NYSE: UA).

Lululemon’s new CEO said:

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

As Nike and Under Armour both make inroads into Lululemon’s yoga apparel, the Canadian company is being squeezed by a much larger company and one that is growing more than twice as fast. Lululemon’s outlook for 2014 speaks more plainly to this precarious position than anything we could say.

Lululemon shares were up about 8.7% in the first half-hour of trading Thursday, at $52.31 in a 52-week range of $44.32 to $82.50.