Lululemon’s lowered forecast has analysts worried about its health

Lululemon Athletica Inc., the upscale yogawear purveyor that has recently courted controversy, reported third-quarter earnings that by all accounts exceeded Wall Street’s expectations.

It was the company’s forecast for its future that has analysts concerned.

The Vancouver, Canada, retailer, which earlier this week announced a new incoming chief executive and a replacement chairman, said its same-store sales in the fourth quarter would be flat, down from more optimistic earlier predictions.

The company also said it expects revenue for the full year to land between $1.605 and $1.61 billion, while earnings per share would fall between $1.94 and $1.96. This summer, projections had called for net sales between $1.625 billion and $1.635 billion with earnings per share topping out at $1.97.

Lululemon stock was down nearly 11% in morning trading in New York, sliding $7.23 to $61.12 a share.

Analysts’ goodwill, which surged last week after the company said Toms’ President Laurent Potdevin would take over from current Chief Executive Christine Day in January, quickly dissolved.

“We believe the guidance casts doubt on the health of the business,” wrote Macquarie Capital analyst Liz Dunn in a note to clients.

She also wondered whether customer perception of the brand is at risk “and whether competition is beginning to have an impact.”

On Thursday, Lululemon reported sales of $379.9 million – a 20% increase that topped analyst expectations for $374.6 million in revenue. Same-store sales increased 5%. Earnings per share rose to 45 cents on net income of $66.1 million, up from 39 cents and $57.3 million the same quarter a year earlier.

Wall Street had anticipated 41 cents in earnings per share.

Still, outgoing CEO Day said “this so far has been a year of challenges, learning and growth for Lululemon,” adding that the company’s outlook “is being impacted by both macro and execution issues.”

Lululemon has been plagued by quality concerns this year. In the spring, it recalled its popular black yoga pants after customers complained that they were see-through.

After running the product through tests and returning it to shelves, more problems began to emerge this fall as fans pointed out continued thinness along with pilling and breakages in the fabric.

Then, Lululemon founder Chip Wilson drew ire when he went on television and suggested that the issues were being caused by consumers, noting that “some women’s bodies just actually don’t work” with the pants.

The company this week said Wilson would step down as chairman next year.

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