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Originally published Thursday, December 12, 2013 at 11:03 AM

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Lululemon shares fall after weak forecast

Lululemon's image problems are starting to take a toll on its business, the yoga clothing seller's executives acknowledged Thursday.


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NEW YORK —

Lululemon's image problems are starting to take a toll on its business, the yoga clothing seller's executives acknowledged Thursday.

Shares of Lululemon Athletica Inc. dropped nearly 11 percent after the company said it expects a key sales figure to be flat in the next quarter and trimmed its outlook for the year. It noted that customer traffic in its stores slowed down in November.

The weak forecast comes as Lululemon looks to bounce back from a series of embarrassing issues. This spring, it pulled its Luon line of its popular yoga pants from store shelves after customers complained they were too see-through. The company blamed their sheerness on production problems.

The company's founder, Chip Wilson, also angered some customers when he said in a recent television interview that some women's bodies "just don't actually work" for Lululemon pants. He also said thighs rubbing over time will cause the pants to wear out too quickly.

Earlier this week, the Canadian company named a new CEO, Laurent Potdevin, and said Wilson would step down as chairman. Potdevin succeeds Christine Day, who had been CEO since 2008 but announced her intentions to leave in June. Potdevin, a 20 year-industry veteran, was most recently CEO of Toms Shoes.

The muted outlook is a sign of the challenges ahead. The company, based in Vancouver, has long enjoyed a devoted following willing to pay $100 for a pair of yoga pants. Those devotees helped Lululemon ring up $1.4 billion in sales last year.

But the company's Chief Financial Officer John Currie acknowledged in a conference call with investors Thursday that the gaffes and quality issues have hurt the business.

"Any time there is negative PR for a company, there is an impact on the business," Currie said. "Let's face it, we have had lots of PR issues this year -- whether it is the Luon pullback or Christine's resignation. And there is undoubtedly some impact on traffic and therefore on the business."

For the quarter that ended Nov. 3, the Canadian company said it earned $66.1 million, or 45 cents per share. That's up from $57.3 million, or 39 cents per share, a year ago.

Analysts had forecast 41 cents per share, according to FactSet.

Revenue rose 20 percent to $379.9 million, above the $374.6 million Wall Street expected.

For the fourth quarter, the company projects net revenue to be in the range of $535 million to $540 million and expects revenue at stores open at least a year to be unchanged from a year earlier. Earnings per share are expected to be in the range of $0.78 to $0.80 for the quarter.

Analysts were expecting $1.01 per share on revenue of $689 million according to FactSet estimates.

The company said it now expects revenue for the year to be between $1.605 billion and $1.61 billion. In August, it had said it expected between $1.625 billion and $1.635 billion.

Earnings are now expected to be between $1.94 and $1.96 per share; the company previously forecast $1.94 to $1.97 per share.

The stock was down $7.45 to $60.90 per share in midday trading. Shares have been down 10 percent this year.



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