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Lululemon shares fall on sales projections

A lululemon store in Toronto

Fred Lum/The Globe and Mail

Lululemon Athletica Inc. shares fell more than 4 per cent Tuesday following fourth-quarter earnings projections from the clothing retailer.

The Vancouver-based company expects sales to be at the high end of its guidance and earnings will be better than the company expected.

However, Lululemon's updated sales guidance missed analyst estimates by several million dollars – adding weight to concerns that its growth is slowing.

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Lululemon stock dropped $2.93 a share, or 4.11 per cent, to closed at $68.24 in trading on the Toronto Stock Exchange.

On Monday, the retailer said revenue for the key holiday quarter will be near the $475-million (U.S.) to $480-million previously forecast, based on a same-store sales percentage increase in the high single digits on a constant-dollar basis.

The retailer also said it now expects diluted earnings per share of 74 cents for the quarter ending Feb. 3. That compared with earlier guidance of between 71 and 73 cents per share.

The updated guidance compared with an average analyst estimate for 74 cents per share in earnings, according to data compiled by Thomson Reuters. But analysts had estimated $488.1-million in sales revenue.

Lululemon chief executive Christine Day said the results came as the calendar compressed holiday shopping patterns into a couple of key weeks.

"We are also pleased that our gross margin is running slightly ahead of plan and that we are entering 2013 in a clean inventory position," Ms. Day said in a statement.

"Along with our new back-to-gym product, we are beginning to flow a beautiful new spring assortment into our stores this week and look forward to introducing new innovation and function to our guests in 2013."

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The high single-digit percentage same-store sales growth for the company's fourth quarter compares with 18 per cent comparable-store sales growth in the third quarter.

Earlier this month, Credit Suisse downgraded Lululemon's rating to "neutral" from sector "outperform" citing a likely slowdown in same-store sales momentum and the risk of further margin pressure.

Credit Suisse said it expected further slowing in 2013, especially at "mature" stores in Canada, which comprise 59 per cent of the chain's total sales and have already seen a slowdown in growth.

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