Lululemon starts year strong, but division restructuring is underway

Product innovation, an enhanced digital experience, and its first-ever global brand campaign boosted Lululemon’s first quarter earnings — however these gains are not swaying the company’s restructuring plans.



The athleisure brand is currently restructuring Ivivva, its activewear brand for girls. The division will operate primarily as an e-commerce business, supported by only a select number of stores in key communities across North America.



The chain plans to close approximately 40 of its 55 Ivivva-branded stores and will convert approximately half of these locations to Lululemon-branded stores. The company will also close all of its Ivivva-branded showrooms and other temporary locations, and will streamline its corporate infrastructure.



Lululemon expects the closures and restructuring to be complete by the end of the third quarter of fiscal 2017. In connection with this restructuring plan, the company reported pre-tax costs totaling $17.7 million in the first quarter of fiscal 2017.



For the first quarter ended April 30, the athleisure brand also reported net revenue of $520.3 million, or 32 cents a share, an increase of 5% compared to the first quarter of fiscal 2016. Revenues also surpassed analysts’ projections of $514 million, or 28 cents per share.



Gross profit was $256.9 million, an increase of 7% compared to the first quarter of fiscal 2016. Adjusted gross profit was $262.3 million, an increase of 10%.



Total comparable sales decreased 1%. Same-store sales decreased 2%, and direct-to-consumer net revenue was flat.



"From our cadence of product innovation, to our enhanced digital experience, and first-ever global brand campaign, we have never felt more deeply connected to our guest or better positioned to expand our collective,” said Laurent Potdevin, CEO,Lululemon. “We remain laser focused on owning our position as the global brand defining an active, mindful lifestyle."



Looking ahead to the second quarter, Lululemon expects net revenue to be in the range of $565 million to $570 million. It also predicts total comparable sales increases in the low-to-mid single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $0.13 to $0.15 for the quarter.



Excluding the impact of the Ivivva restructuring, Lululemon expects ad-justed diluted earnings per share to be in the range of $0.33 to $0.35 for the quarter. Based on the restructuring of the Ivivva operations, the chain expects to recognize total pre-tax costs of between $50.0 million and $60.0 million in fiscal 2017, including the $17.7 million recognized during the first quarter. This primarily relates to long-lived asset impairment and lease termination costs, according to the retailer.



"I'm excited to see the positive trends that materialized late in Q1 continuing into Q2,” Potdevin said. “Our current outlook for the remainder of 2017 is strong, and I'm energized by the growth strategies taking shape. I'm also confident in our plans to restructure Ivivva, and believe they are the best means to optimize this part of the business.”