Lululemon Shares Plummet on Disappointing Company Outlook

Impressive Q1 revenue increases can't keep Lululemon Athletica from tanking on the company's disappointing outlook. Lululemon LULU announced this morning that for the first quarter (which ended April 29, 2012), net revenue increased 53% to $285.7 million. This compares favorably to the company's first quarter results in 2011, which were $186.8 million. On a constant dollar basis, comparable store sales increased by 25%, while direct-to-consumer revenue soared 179% to $38.4 million. Gross profit also increased for the quarter, rising 43% to $157.3 million. (As a percentage of net revenue, gross profit decreased to 55.0% for the quarter from 58.7% in the first quarter of fiscal 2011.) Further, Lululemon announced that income from operations increased 41% to $73.1 million. All told, this amounted to an increase for the company's EPS. For the first quarter, diluted earnings per share were $0.32 on net income of $46.6 million. Comparatively, in the first quarter of fiscal 2011, diluted earnings per share were $0.23 on net income of $33.4 million. Lululemon concluded the quarter with $424.3 million in cash and cash equivalents (up from $260.9 million at the end of Q1 2011). "Our strategy to increase inventory levels led to strong revenue growth and earnings performance in the first quarter as our guests responded well to our spring styles and colors," Lululemon CEO Christine Day stated in a company release. With so many reasons to celebrate, you might wonder why investors aren't responding positively to Lululemon. But in addition to the positive earnings results, the company announced that it expects second quarter net revenue to be in the range of $273 million to $278 million "based on a comparable-store sales percentage increase in the low double digits on a constant-dollar basis." Lululemon expects its diluted earnings per share to be in the range of $0.28 to $0.30 for the coming quarter. This puts Lululemon on track to surpass its previous net revenue expectations for fiscal 2012. In the fourth quarter, Lululemon expected net revenue to be in the range of $1.3 billion to $1.325 billion. Now Lululemon expects net revenue to be in the range of $1.32 billion to $1.34 billion. Still, the company's Q2 outlook has fallen below analyst expectations. Consequently, investors are bailing on the stock in pre-market trading. As of this writing, Lululemon's shares have plummeted 12%. Follow me @LouisBedigianBZ