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Lululemon 2Q Profits Down

Lululemon Athletica Inc. is having a difficult year. The Vancouver based retailer, a self-professed “leader in ‘anti-stink athletic apparel,” reported a 1.3% drop in quarterly profit. The company has been plagued by chronically higher input costs and a welter of bad press following an embarrassing recall.

For the last fiscal quarter ending August 4th, Lululemon had a profit of $56.5 million, slightly lower than last year’s $57.2 million. Same store sales were up 8 percent on a constant-dollar basis and revenue spiked by an impressive 22 percent to $344.5 million.

Still, Lululemon’s revenue gains were eaten up by rising costs. Gross margin shrank to 54% from 55.1% as a result of a 25% increase in input costs. It has adjusted its expectations for per-share earnings down from $1.94 to $1.97 on revenue of $1.63 billion to $1.64 billion, to $1.96 to $2.01 a share on $1.65 billion to $1.67 billion in revenue. A weakened Canadian dollar has been a thorn in its side as well.

Also, last June the company was forced to recall its black “luon pants,” its best selling pair of yoga pants, after it was mistakenly produced so sheer it was virtually transparent. The modesty of fitness conscious soccer mom’s all over was apparently offended. Former CEO Christine Day was forced to resign after the snafu.

The luon pant shortage certainly left its mark; inventory at the end of the quarter equaled $163 million, in comparison to last year’s $125.4 million.