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A woman leaves the Kitsilano, B.C. Lululemon store in Vancouver Thursday, October 18, 2007.RICHARD LAM/The Canadian Press

Although inflationary pressures and more discounting will pinch its profit margins this year, Lululemon Athletica Inc. raised its 2011 financial forecast, confident that higher sales and other expense controls will give it a boost.

The retailer's recent problems with inventory shortages started to ease in its first quarter and are continuing to improve, company executives said on Friday in releasing first-quarter results that beat analysts' expectations.

And it's tackling its challenges of overhauling its e-commerce operations – switching them in-house from third-party fulfillment -- preparing Lululemon for a strong fall and holiday season, chief executive officer Christine Day said.

"Although we had a few bumps on the road given the complexity of our e-commerce project, for the most part we saw a relatively smooth transition," Ms. Day told an analysts' conference call on Friday morning.

"We believe there is room for continued productivity increases as we build our inventory position, invest in our stores ... and execute our strategy...

"While we remain cautious about the macro-environment, we are confident that our business momentum will remain on trend for fiscal year 2011 and are confident in our ability to navigate the cost pressures to sustain our healthy business model."

Investors were becoming increasingly anxious about Lululemon's ability to keep overstretching itself and producing better-than-expected results. As well, investors were rattled about disappointing sales overall in the retail sector this spring, hurt partly by unseasonable weather but also by increasing consumer cautiousness.

Still, Lululemon showed in its first quarter that it still has the knack to under-promise and over-deliver.

Store productivity at Lululemon has now reached a new high of more than $1,800 sales per square foot on average on a 12-month trailing basis, up from $1,428 a year ago, Ms. Day said. She recently revealed that a handful of the chain's most productive stores generate sales-per-square foot "well over $4,000." That's twice as much as the productivity at the best stores in a top Canadian mall, such as the Toronto Eaton Centre.

Meanwhile, productivity at Lululemon's U.S. stores is starting to catch up to that of the more established Canadian outlets, analysts were told.

The Vancouver-based company said first-quarter profit was $33.5-million (U.S.), or 46 cents per share -- above analysts' target of 38 cents per share, according to a poll by Thomson Reuters. Revenue increased to $186.8-million from $138.3-million.

Despite the stronger results, the growth was more sluggish than previous quarters when the retailer had reported revenues that doubled, but the slowdown had been expected.

Inventory shortages hurt sales at the beginning of the quarter although higher levels of merchandise by April led to a 20 per cent increase in same-store sales in that month alone, chief financial officer officer John Currie said.

First-quarter same-store sales, overall, rose16 per cent and would have gained 20 per cent if the retailer hadn't grappled with inventory snags, he said.

The chain raised its 2011 outlook to profit-per-share of $2.10 to $2.16, up from its previous forecast of $1.90 to $2. And it now expects revenue of between $915-million to $930-million, up from its previous $885-million to $900-million.

Lululemon had previously said it anticipated slower growth in the first months of 2011 as it struggled to keep enough inventory on shelves to satisfy strong customer demand.

On Thursday, shareholders approved a two-for-one split of the company's stock. The post-split shares are expected to begin trading on the Nasdaq market in New York under the symbol and on the Toronto Stock Exchange around end of June.

After the split, Lululemon will have about 108 million shares issued and outstanding.

Lululemon shares had been beaten down in recent weeks after the Canadian fashion retailer was downgraded by an analyst ahead of the company's earnings. The stock hit a 52-week high of $97.99 in April, but were trading Friday morning at $87.28, up 4 per cent.