Lululemon sees tough holiday season as it works to rebuild trust with customers

VANCOUVER – Lululemon Athletica has warned of a tough holiday season as it works to win back customers after several missteps this year that likely hurt results.

The retailer (Nasdaq:LULU) reported improved third-quarter earnings Thursday compared with a year ago, but warned that same-store sales for the key holiday period will come in nearly flat.

Shares in the company tumbled, closing down US$7.96 or nearly 12 per cent at $60.39 on the Nasdaq market.

Lululemon has struggled this year after pulling its black Luon pants from store shelves after customers complained the pants were too sheer.

The company blamed the problems on a style change and production issues and moved to fix them, but later, new complaints emerged about the quality and durability of their pricey workout gear.

“There is undoubtedly some impact on traffic and therefore on the business,” chief financial John Currie told a conference call with financial analysts.

“Our job is to make sure that it is a short-term impact by earning back the trust of the guest and that’s what we’re focused on, both in terms of quality and making sure we’re connected with out communities.”

Currie said the company has instituted a program over the holidays called “no humbug.”

“We’ve allocated funds to each store to just surprise and delight the guest in whatever creative ways they want to,” he said.

“Just random acts of kindness because that’s who we are. Just trying to connect with the communities again.”

The retailer, which keeps its books in U.S. dollars, said Thursday it earned US$66.1 million, or 45 cents per diluted share, for the three-month period ended Nov. 3, up from $57.3 million, or 39 cents per diluted share, a year ago.

Revenues climbed to $379.9 million from $316.5 million for the quarter, while same-store sales were up five per cent after adjusting for currency fluctuations.

Analysts on average had expected a profit of 41 cents per diluted share, according to data compiled by Thomson Reuters.

The company opened 22 stores in the quarter and closed one to bring its total to 247 stores.

In its outlook, Lululemon said it expected diluted earnings per share to come in between 78 and 80 cents on $535 million to $540 million of revenue for the current quarter, which runs until the end of January.

On Tuesday, the company named Laurent Potdevin as its next chief executive and announced that founder Chip Wilson will step aside as chairman next year, though he will remain on the board.

Critics accused Wilson of shaming women’s bodies when he said in an interview with Bloomberg TV last month that some women’s bodies “don’t work” for the Lululemon pants.

“It’s really about the rubbing through the thighs, how much pressure is there,” he said.

Wilson later posted a video message online in which he said he was “sad” for the repercussions of his actions and took responsibility “for all that has occurred.”