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Lululemon profit soars, shares climb more than 12 per cent

Exteriors of the lululemon store on Queen St. West photographed June 7 2012

Fred Lum/The Globe and Mail

Despite some setbacks, yoga retail phenomenon Lululemon Athletica Inc. continues to defy its doubters after reporting an almost 50-per-cent jump in quarterly profit to $57.2-million and boosting its 2012 outlook, resulting in its shares soaring more than 12 per cent.

Chief executive officer Christine Day said the retailer is learning from its mistakes, including problems of bleeding colour dyes and discontinuing a popular pair of loose-fitting pants, which prompted customer complaints.

Lululemon was forced to apologize about the bleeding garments on its Facebook page in July. On Friday, it said it would bring back its so-called "still" loose-fit pants in a "reinvented" way.

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"It was such a mistake to ease out the still pant," Ms. Day told analysts. But customers "can rest assured we've heard their feedback."

Lululemon manages to respond to problems and even profit from changes it makes to correct them. At the same time, it has turned another snag into part of its business model: Although it is getting better at stocking enough products to keep up with customer demand, it still limits the merchandise it carries on its e-commerce site to create higher demand, minimize clearance sales of excess inventory and ensure customers don't show up at yoga class just to find everyone else dressed in the same Lululemon outfit.

Even so, the retailer grapples with complaints about bleeding clothes and other snafus, which surface quickly on Facebook and other social media, becoming an instant public-relations challenge.

As customer Reyna Yamamoto wrote on the retailer's Facebook page earlier this year: "In the future could you please test your dyes before production and make sure they don't bleed? I have been staying away from so many of your recent colours lately because of this."

Ms. Day said on Friday that while Lululemon's "Paris pink" hue and other bright neon colours posed problems, the difficulties didn't materially hurt Lululemon's financial results.

She said the problems were isolated and the the company hired a colour expert who taught Luulemon "a lot of great new tricks ... So the silver lining in having an issue with Paris pink was that it created actually more opportunity."

By making some changes and working with manufacturers and mills, "we feel very comfortable now with the product and being able to do our strategic intent, which is push colours and maintain quality," Ms. Day said.

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She also addressed attempts by rivals to copy Lululemon products, which resulted last month in the retailer suing Calvin Klein Inc. for allegedly developing a line of athletic pants that are similar to the Canadian retailer's designs.

"In some respects, this is a tremendous compliment, as the saying goes: 'Imitation is the sincerest form of flattery,'" Ms. Day said. "However, while others may try to mimic parts of our business, it is impossible to copy a personality ... When we see attempts to mirror our product we will take the necessary steps to protect our assets."

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