Yogawear retailer Lululemon Athletica Thursday reported Q2 net revenue increased 16% to $453.0 million from $390.7 million year over year. Q2 total comparable sales (same-store sales plus direct to consumer) increased 11% on a constant dollar basis; Q2 same-store sales rose 6% and direct to consumer rose 35%.
Q2 net earnings were $47.7 million, or $.34 per share, compared with $48.7 million, or $.33 per share, year over year, besting the Factsheet consensus estimate by a penny.
But investors balked and sent the share price down 16% Thursday as the retailer reported bulked up end-of-Q2 inventory of $280.6 million, 55% higher year over year, a problem CFO Stuart Haselden put on last year’s West Coast port delays.
In his conference call Thursday, Lululemon CEO Laurent Potdevin took great pains to remind investors that the Q2 rough patches the retailer is reporting had nothing to do with the quality issues that have dogged the company.
“It’s really, really important for everyone to understand that the short-term growth in margin pressure that we are experiencing is not the result of higher markdowns or quality issues,” Lululemon CEO Laurent Potdevin assured investors as he responded to an analyst during a conference call Thursday morning.
Certainly the retailer has spent good money on store improvements and expansion — its retail space increased 25%, which has hurt the bottom line but fueled sales. It’s the kind of long-term strategy that companies suffer for on the Street in the short term. Its newer menswear business has been an especially positive factor, with same-store sales for men rising 31% year over year.
But the inventory pileup is a concern, in part because it begs the question of whether Lululemon can continue to charge top dollar in the face of rising competition in the athleisure space it created—especially if quality issues still linger in some minds.