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Lululemon Lowers Fiscal-Year Forecast as Q3 Profit Slips

The ubiquity of activewear at every price point is causing one-time athleisure leader Lululemon to lose even more market share.

The Canadian company—whose yoga pants were once a wardrobe staple for non-yogis everywhere before becoming the butt of all jokes after too-sheer bottoms had to be pulled from store shelves—on Wednesday reported that net income for the three months ended November 1 fell from $60.5 million to $53.2 million. Diluted earnings per share (EPS) were $0.38 compared to $0.42 in the same period last year.

Though net revenue for the third quarter rose 14 percent to $479.7 million from $419.4 million and total comparable sales (including same-store and direct-to-consumer) increased by 9 percent on a constant dollar basis, gross profit as a percentage of net revenue decreased from 50.3% to 46.9%.

Income from operations, meanwhile, fell 16 percent from $81.2 million to $68.2 million.

But Lululemon CEO Laurent Potdevin called the quarter “solid” and in line with the company’s expectations.

He continued, “We’ve implemented critical organizational changes this quarter and now have in place a complete, world-class management team that is aligned with our strategic global priorities focused on design and dedicated to creating long-term value.”

Lululemon is forecasting net revenue in the range of $670 million and $685 million for the final quarter of the current fiscal year, based on total comparable sales in the mid-single digits on a constant dollar basis, and diluted EPS is expected to be in the range of $0.75 and $0.78.

The company also lowered its full-year outlook and is now anticipating net revenue of between $2.025 billion and $2.040 billion, compared to previous guidance in the range of $2.025 billion and $2.055 billion. Diluted EPS is expected to be $1.81 to $1.84, versus $1.87 to $1.92.

Wednesday’s earnings announcement coupled with the news that it plans to hold more warehouse sales in Q4 to clear out excess inventory (including one in the U.S. and one in Canada within the next three to four months) caused Lululemon’s shares to slip 11 percent in afternoon trading.

“Although LULU continues to forecast significant gross margin improvement over the next 12 to 24 months, the fact that sales are decelerating, inventories remain heavy and management had to push out the merchandise margin target by six months suggests a significant amount of uncertainty in the direction of the business,” said a note from Wells Fargo analysts to investors.