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Lululemon stock surges after decision to shutter most Ivivva outlets

Yoga mats sit on display inside a Lululemon Athletica Inc. store in Hong Kong, China.

Xaume Olleros/Bloomberg

Lululemon Athletica Inc. is shutting down 40 of its 55 Ivivva stores, citing years of operational losses.

The Vancouver-based retailer said Thursday the line of girls' yoga and athletic wear will continue to be sold, but mainly online, with half of the 15 remaining Ivivva stores to be converted to Lululemon outlets.

"By Aug. 20 of this year, we will close all but eight of our Ivivva locations," said CEO Laurent Potdevin on a conference call.

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"While I know this is the best path forward for the future of our business, it's a very difficult decision due to its impact on our people."

A spokeswoman said the company isn't yet disclosing which stores will be affected. There are 11 Ivivva stores in Canada.

In trading Friday, the company's stock was up more than 14 per cent on the Nasdaq.

Chief financial officer Stuart Haselden said on the call the company is targeting "a modest operating profit" for the slimmed down Ivivva to replace what he said have been a series of small operating losses.

The stores were launched in 2009 under former CEO Christine Day.

Neil Saunders, managing director of GlobalData Retail, said in a note he's not surprised at the decision to scale back Ivivva which has faced rising competition from cheaper products in department stores.

"While there is some demand for athletic wear for younger girls, the level and frequency of that demand is insufficient to support a network of expensive stores," he said.

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Lululemon said it will also close all of the Ivivva showrooms, one of which is in Canada, and other temporary locations as part of a restructuring that will cost about $50-million to $60-million in pre-tax costs throughout fiscal 2017.

In March, the company known for its yoga clothing warned that it would experience softer sales in the first quarter ended April 30 due to sluggish traffic in stores and a lack of selection on its e-commerce site, predicting earnings per share of 25 to 27 cents on revenue of $510-million (U.S.) to $515-million (U.S.).

On Thursday, it reported first-quarter revenue of $520-million (U.S.), an increase of five per cent compared to the first quarter of fiscal 2016.

Net income was $31.2-million, down from $45.3-million a year earlier, with earnings per share of 23 cents, down 10 cents.

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