Lululemon Has Failed Investors Yet Again

In what is now becoming a familiar occurrence, the most recent earnings results from lululemon athletica (NASDAQ: LULU  ) have failed to impress investors. On June 12, the yoga lifestyle retailer announced first-quarter earnings results that beat consensus estimates, but management lowered overall 2014 guidance in the process, sending shares down over 15% in pre-market trading.

While the company is still very much in a transitional period as it attempts to recover from a tumultuous 2013, Lululemon is struggling to return to the high levels of growth that competitors like Under Armour have been operating at for years.

Source: Lululemon. 

Better than expected results
For the first quarter, Lululemon's net revenue increased to $384.6 million, up 11% from last year's comparable quarter of $345.8 million. However, same-store sales growth decreased 4% in the quarter while direct-to-consumer revenue increased 25% on a constant-dollar basis. 

Earnings per share for the first quarter came in at $0.34, up 6.3% from last year's comparable quarter of $0.32. However, this quarter included a one-time adjustment of $0.21 related to a planned repatriation of foreign earnings, which brought the company's actual diluted earnings per share to $0.13. 

However, Lululemon's revenue and EPS results both came in ahead of what analysts were expecting. According to Yahoo! Finance, the average analyst's estimate called for revenue of only $381.2 million and EPS of only $0.32. 

In the earnings release, Lululemon Chief Executive Officer Laurent Potdevin explained, "We are pleased that Q1 results were slightly ahead of our expectations. 2014 is very much a transitional year for lululemon, and we are on track with the improvements we have set out to achieve. We are focused on building a scalable foundation to further elevate our North American business and pursue the brand's incredible international potential." 

While the latest results from the yoga retailer still point to overall growth, when compared to rival Under Armour, the report is merely average at best. In its first quarter, Under Armour reported net revenue growth of 36% and diluted EPS growth of 71%. On top of that, management at Under Armour raised its guidance for the remainder of the 2014 fiscal year. 

Lowered guidance
Despite the slightly stronger-than-anticipated first quarter results, management at Lululemon still lowered its outlook for the second quarter and for full-year 2014.

Management now expects second-quarter revenue to be in a range of $375 million to $380 million, which is below the consensus estimate, which called for $387 million. Earnings per share for the quarter are now expected to be in a range of $0.28 to $0.30, also below the consensus estimate of $0.36. 

For fiscal 2014, management at Lululemon now expects revenue to be in a range of $1.77 billion to $1.8 billion and EPS in a range of $1.71 to $1.76. Both guidance ranges are below what analysts were expecting. 

CEO Potdevin explained, "Despite a reduced outlook, I am confident that the work we are doing today will only enhance our premium positioning as we continue to lead as the market innovator." 

Positive takeaway
There was a bit of good news to come out of Lululemon's earnings release, however. The company announced a $450 million share buyback program. The repurchase program will take effect at prevailing market prices, which after the company's latest earnings report are cheaper than they've been in years. 

The money to fund the repurchase program was recently repatriated and resulted in the one-time adjustment in the company's first quarter.

Lululemon store in Chicago. Source: Lululemon. 

Bottom line
The main problem is that the Lululemon management team keeps saying it has a plan to turn the company around, but rarely goes into specifics about just what it intends to do. The company's latest report and weak full-year forecast only prove that management's latest efforts are not yet working.

With shares of Lululemon now at fresh 52-week lows, potential investors need to exercise caution, as the company's turnaround does not seem to be here just yet. With a superior brand strength, growth, and management, investors would do well to consider athletic retailer Under Armour over Lululemon at the current time.

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Philip Saglimbeni

Philip is an avid investor and writer. He contributes to The Motley Fool and Seeking Alpha. You can follow Philip on Twitter @philsags.

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