Lululemon Disappoints Wall Street, But Shows Signs of Recovery

Wall Street might not be happy, but embattled yoga-apparel retailer Lululemon is showing signs that its prospects are improving after a rocky few years.

Lululemon said its fiscal second-quarter profit fell to $48 million from $49 million in the second quarter last year, though that was largely in-line with what Wall Street analysts had expected. Net revenue increased 16 percent to $453 million, up from $391 million in the same period a year earlier, while same-store sales increased 6 percent.

The company also raised its full-year outlook, predicting net revenue in the range of $2.025 billion to $2.055 billion, up from its guidance of $2 billion to $2.05 billion last quarter.

"We exceeded our revenue targets for the past quarter, supported by strong performance from both our store and ecommerce channels," Lululemon CEO Laurent Potdevin said in a statement.

If Wall Street had a complaint, it seemed to be with profitability. Margins slipped in the quarter to 46.8 percent from 50.5 percent in the second quarter of last year. Shares of Lululemon in midday trading had fallen by more than 12 percent.

Despite Wall Street's reaction, the results do show improvement for a company that has had a string of operational issues in 2013 and 2014.

During that period, under Lululemon's founder and former-chairman Chip Wilson, the company received heavy helpings of negative publicity. Most notably, Lululemon was forced to recall a line of yoga pants that some claimed you could see through. Not only did the recall significantly cut into the company's bottom line, but Wilson unleashed an avalanche of consumer backlash when he suggested, in an on-air interview, that "some women's bodies just don't actually work" for the company's clothing, implying that large thighs, not sheer fabric, was the real problem.

In the midst of all this, Potdevin, the former president of TOMS Shoes, was brought on as CEO.

The company credits its raised full year-outlook, in part, to the launch of new prints and the expansion of its men's line. "All men's clothing performed well, validating our goal of building a billion dollar men's business globally," Potdevin said on the earnings call.