Lululemon says it will shutter about 40 of its 55 ivivva branded stores

Lululemon says it will shutter about 40 of its 55 ivivva branded stores

Canadian yoga wear brand Lululemon Athletica came down to earth with a bit of a bump during the first quarter, revealing a drop in earnings alongside news it is to shutter around 70% of its Ivivva stores as the brand transitions to a primarily e-commerce focused business.

For the 13 weeks ended 30 April, net income amounted to US$31.2m, having slipped 31.1% from $45.3m a year earlier. Gross margin increased 110 basis points to 49.4% from 48.3% in the year-ago period.

Net revenues increased 5% to $520.3m from $495.5m last year, while total comparable sales were down 1%. Comparable store sales, meanwhile, slipped 2%.

Meanwhile, Lululemon has revealed plans to operate Ivivva, its activewear brand for girls, as a primarily e-commerce focused business, with a select number of stores in key communities across north America.

As a result, Lululemon says it will shutter about 40 of its 55 Ivivva branded stores and convert around half of the remaining 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.

It is anticipated the closures and restructuring will be substantially complete by the end of the third quarter of fiscal 2017. The restructuring has resulted in pre-tax costs of $17.7m for the first quarter.

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

For the year ahead, Lululemon is expecting net revenues in the range of $2.53bn to $2.58bn based on a total comparable sales increase in the low-single digits on a constant dollar basis. Diluted earnings per share are expected to be in the range of $1.97 to $2.07.

The restructuring of Ivivva is expected to result in total pre-tax costs of between $50m and $60m in fiscal 2017, inclusive of $17.7m recognised during the first quarter.

Excluding the impact of the Ivivva restructuring, the company expects adjusted diluted earnings per share in the range of $2.28 to $2.38 for the year.

Neil Saunders, managing director of GlobalData Retail, notes after ending its last fiscal with a flourish, Lululemon has come down to earth with a bit of a bump during the first quarter of this year. While total sales continue to advance, mainly thanks to the addition of new stores, he says the growth rate of 5% is "anaemic" compared to the double-digit increases Lululemon has traditionally posted.

However, Saunders concedes much of this is down to tougher prior year comparatives. "It was never feasible for Lululemon to continue posting stellar increases ad infinitum, especially against the backdrop of a crowded and competitive market," he adds. "When set in this context, the numbers are not so bad and have topped previously issued guidance."

Meanwhile, Saunders says he is "not particularly surprised" by the decision to streamline Ivivva. "While there is some demand for athletic wear for younger girls, the level and frequency of that demand is insufficient to support a network of expensive stores," he says. "This has likely become even more of an issue over the past year as generalists have piled into the market - affording price sensitive and brand disloyal younger consumers more opportunity to shop around. That said, Ivivva is not without potential - but that potential is more optimally reached via e-commerce."

Overall, he adds the outlook for Lululemon remains "solid".

Earlier this month, the company unveiled what it says is a "revolutionary" sports bra, designed to embrace movement without compromising performance and featuring a new high-performance fabric.

Lululemon unveils "revolutionary" sports bra