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    1476   TW0001476000

ECLAT TEXTILE CO., LTD.

(1476)
  Report
End-of-day quote Taiwan Stock Exchange  -  2022-10-04
408.00 TWD   +1.12%
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Lululemon says pants recall could dent profit by $40 million

03/21/2013 | 01:28pm EDT
Pedestrians walk past a Lululemon Athletica store in New York

TORONTO (Reuters) - Yogawear chain Lululemon Athletica Inc (>> Lululemon Athletica Inc) said on Thursday it could lose up to $40 million in profit this fiscal year because of its decision to pull defective workout pants from its shelves.

TORONTO (Reuters) - Yogawear chain Lululemon Athletica Inc (>> Lululemon Athletica Inc) said on Thursday it could lose up to $40 million in profit this fiscal year because of its decision to pull defective workout pants from its shelves.

Despite the profit warning, Lululemon's shares rebounded slightly from a sharp decline earlier this week, when the company said it had discovered some of its signature stretchy pants were too easy to see through and customers could return them for refund. It said there would be product shortages as a result.

Investors may have feared worse damage and may have been reassured by Lululemon's report of a fourth-quarter profit that was slightly higher than it had forecast.

"I think it's relief about the magnitude of the potential impact," said Credit Suisse analyst Christian Buss on the stock move. "If we strip away this recall, the core business is still healthy, and we have a validation of that with these results."

Chief Financial Officer John Currie said the company would probably feel much of the recall's impact in the second quarter, from May to July, when sales in established stores will show little change or grow by a percentage in the "very low single digits." That's a sharp slowdown from a year earlier, when same-store sales rose 15 percent.

"This has been a challenging time for all of us," Chief Executive Christine Day said on a conference call with analysts and investors, adding later that her team was "devastated" by what had happened.

Lost revenue, a writedown of the recalled goods and other costs will reduce earnings by 11 cents to 12 cents a share in the current quarter, the company said, and between 25 cents and 27 cents a share for the full year.

REACHING FOR QUALITY

The defective pants, the second quality issue disclosed by the company in less than a year, could also undermine Lulu's reputation for selling workout clothes that last for years. In July, the company said it was working on problems with dye bleeding from some bright garments.

Day said Lulu is rethinking how it tests products: "The truth of the matter is the only way you can actually test for the issue is to put the pants on and bend over," she said.

Lululemon has a team on site with its suppliers, working to find the cause of the problem, she said, adding that it had recently "added strong leadership" in quality control.

Day stopped short of blaming suppliers, and said problems could have arisen at any of four manufacturing stages, involving multiple vendors. She also said the mistake could have been Lululemon's, in something related to a new pattern, for example.

Credit Suisse's Buss questioned Lulu's communications strategy. He noted that the company has not posted the recall on its Facebook page or on the front page of its web store, and said it does not seem to be reaching out to fan sites that track its product launches.

"The big risk here is that they alienate their core customer, and I'm clearly not a crisis management expert, but this seems somewhat lacking," he said.

RIVALS SEE OPPORTUNITY

Brian Sozzi, chief equities analyst at NBG Productions, said Lulu's forecasts may prove too optimistic.

"It looks like they're expecting a return to their glory days by the mid-year," he said. "I can't necessarily believe in that, because for the first time now they've opened the window for competitors."

Lululemon effectively created the market for premium women's athletic wear with its form-fitting pants, colorful tank tops and pricey sweatshirts. But in recent years a cluster of competitors have rolled out more yoga and running wear.

Shortages of the black pants, a core product for Lululemon, may send customers to brands like Under Armour (>> Under Armour Inc), Nike Inc (>> NIKE, Inc.) and Gap Inc's (>> The Gap Inc.) Athleta banner, which typically offer lower prices.

PROFIT TO FALL

Lululemon forecast first-quarter earnings per share of 28 cents to 30 cents, down from 32 cents a year earlier.

Net income for the fourth quarter ended February 3 rose to $109.4 million, or 75 cents a share, from $73.5 million, or 51 cents, a year earlier. The company had said it expected earnings of 74 cents a share.

Revenue jumped 31 percent to $485.5 million, just above Lulu's forecast of $475 million to $480 million.

Sales at established stores, a key measure for retailers, rose 10 percent. The company had forecast a gain in the "high single digits".

Shares rose 1.7 percent to C$66.47 on the Toronto Stock Exchange.

($1=$1.02 Canadian)

(Editing by Maureen Bavdek, Chizu Nomiyama and Peter Galloway)

By Allison Martell


© Reuters 2013
Stocks mentioned in the article
ChangeLast1st jan.
ECLAT TEXTILE CO., LTD. 1.12% 408 End-of-day quote.-35.34%
GLORY LTD. 0.98% 2264 Delayed Quote.2.42%
NIKE, INC. 2.78% 91.1 Delayed Quote.-46.82%
THE GAP, INC. 5.19% 9.72 Delayed Quote.-51.22%
UNDER ARMOUR, INC. 1.08% 7.48 Delayed Quote.-66.82%
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Financials
Sales 2022 42 685 M 1 349 M 1 349 M
Net income 2022 7 194 M 227 M 227 M
Net cash 2022 1 382 M 43,7 M 43,7 M
P/E ratio 2022 15,6x
Yield 2022 4,00%
Capitalization 112 B 3 537 M 3 537 M
EV / Sales 2022 2,59x
EV / Sales 2023 2,52x
Nbr of Employees -
Free-Float 69,7%
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Technical analysis trends ECLAT TEXTILE CO., LTD.
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Income Statement Evolution
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Mean consensus HOLD
Number of Analysts 16
Last Close Price 408,00 TWD
Average target price 476,00 TWD
Spread / Average Target 16,7%
EPS Revisions
Managers and Directors
Chun Chin Tsai Co-General Manager & President-Fabric Division
Kun Tang Chen Co-General Manager & Director
Jen Chieh Lo Director, Head-Finance & Accounting
Chen Hai Hung Chairman, Head-Research & Development
Cheng Ping Yu Independent Director
Sector and Competitors
1st jan.Capi. (M$)
ECLAT TEXTILE CO., LTD.-35.34%3 497
LVMH MOËT HENNESSY LOUIS VUITTON SE-11.03%323 642
LULULEMON ATHLETICA INC.-21.37%39 246
LI NING COMPANY LIMITED-29.12%20 154
VF CORPORATION-57.28%12 339
MONCLER S.P.A.-28.48%12 268