TORONTO (Reuters) - Athletic apparel maker Lululemon Athletica Inc (LULU.O) on Thursday said it would close most of its money-losing Ivivva girls stores and boost investment in its online business as it reported quarterly profit that beat analysts’ forecasts.
The company’s shares surged over 15 percent in after-market trading as Chief Executive Laurent Potdevin said results exceeded the company’s initial expectations after stronger-than-expected sales of new products and fabrics.
Lululemon said it would close nearly all of its 55 Ivivva stores, but continue to sell the brand online. Altogether, Lululemon had 411 outlets at the end of the first quarter.
The shift is part of a broader strategy to boost online sales at Lululemon, which like most traditional retailers is looking to the internet to offset business declines at its physical stores.
“We’ve doubled down on our digital strategy,” Potdevin said on an analyst call, adding that he believed online sales had the potential to reach more than a billion dollars.
The company forecast full-year net revenue of $2.53 billion to $2.58 billion, below its previous guidance of $2.55 billion to $2.6 billion.
The leaner Ivivva will bring in annual revenue of “a little less than half” of what it posted last year, Chief Financial Officer Stuart Haselden said on the call. He said he expected the restructured business to post a “modest” operating profit.
Excluding the impact of restructuring, Lululemon forecast full-year diluted earnings per share of $2.28 to $2.38. That range is 2 cents above the company’s previous forecast.
The Vancouver-based company popularized the “athleisure” market, but sales have faltered in recent years as the company faced operational issues and rivals introduced less-expensive gymwear.
Lululemon’s U.S.-traded shares have fallen about 25 percent so far this year, underperforming the 1 percent gain in the Nasdaq Composite Index.
Investors had low expectations for the first quarter after the company warned in March that sales would be sluggish because customers were not satisfied with the selection available.
It reported adjusted per-share profit of 32 cents in the first quarter ended April 30, beating the 27 cent average forecast of analysts, according to Thomson Reuters I/B/E/S. Revenue rose 5 percent to $520.3 million, beating the average forecast of $514.1 million.
Quarterly comparable sales fell 1 percent, on a constant dollar basis, better than the average forecast for a decline of 1.9 percent, according to Consensus Metrix.
Reporting by Solarina Ho; editing by Leslie Adler and Andrew Hay