What to expect from Lululemon

The athletic clothing maker, which will report earnings on Thursday, has topped estimates over the last four quarters.

By Zacks.com Mar 20, 2012 12:56PM

Image: Woman on rowing machine (© Jupiterimages/Brand X/Getty Images)By Zacks Equity Research
Lululemon Athletica Inc. (LULU), a leading athletic apparel and accessories retailer in Canada, the U.S. and Australia, is scheduled to report its fourth-quarter 2011 financial results before the opening bell on March 22.

The current Zacks Consensus Estimate for earnings for the quarter is 49 cents a share. For the fourth quarter, revenue is expected to be $360 million, according to the Zacks Consensus Estimate.

Third-quarter recap

Lululemon posted earnings of 27 cents per share for third-quarter 2011, handily beating the Zacks Consensus Estimate of 25 cents and topping the prior-year quarter's earnings of 18 cents by 50%. 

The company's 16% increase in comparable-store sales and 71% rise in direct-to-consumer revenues resulted in a nearly 31% year-over-year surge in the quarter's revenues, which came in at $230.2 million. However, revenues fell short of the Zacks Consensus Estimate of $234 million.

Fourth-quarter 2011 outlook

The yoga-inspired athletic apparel company forecasts its earnings for the fourth quarter to be in the range of 47 cents to 49 cents per share, an increase from its previous guidance of 40 cents to 42 cents. Lululemon is expecting earnings growth of approximately 47% to 53% from the prior-year quarter's earnings of 32 cents per share, up from its previous forecasted range of 25% to 31%.

According to management, the existing store upgrades and new store openings have the potential to generate net revenues of $358 to $363 million for the fourth quarter of fiscal 2011, compared with $327 to $332 million guided earlier. The company also anticipates comps to grow in the range of low-to-mid twenties for the upcoming fourth quarter, instead of the earlier forecasted growth range of low-to-mid teens.

Zacks consensus

The analysts surveyed by Zacks expect Lululemon to post fourth-quarter 2011 earnings of 49 cents a share, higher than 32 cents registered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between 48 cents and 50 cents a share.

For fiscal 2011, the Zacks Consensus Estimate stood at $1.24 per share, higher than the previous fiscal earnings of 79 cents. The current Zacks Consensus Estimate for the fiscal ranges between $1.17 and $1.26 per share.

Agreement of estimate

Of the 20 analysts covering the stock, none has revisited their estimates for the fourth quarter over the last 30 days. For the full year, two analysts revised their estimate in the positive direction over the last 30 days, accompanied by a sole reverse movement.

Over the last seven days, no movement in estimates has been noticed for the fourth quarter, while for fiscal 2011, one analyst revised its estimate in the upward direction.

Magnitude of estimate revisions

With hardly any earnings revision by the analysts over the last 30 days, the Zacks Consensus Estimates for the fourth quarter of 2011 and fiscal 2011 remained unchanged at 49 cents and $1.24 per share, respectively.

Surprise history

With respect to earnings surprises, Lululemon has topped the Zacks Consensus Estimate over the last four quarters in the range of 8% to 18.2%. The average remained at positive 14.1%, suggesting that Lululemon has surpassed the Zacks Consensus Estimate by that measure in the trailing four quarters.

Our take

We believe that Lululemon's continued focus on introducing technical athletic products made from innovative and diversified fabrics will further enhance its market proposition. In addition, the company's continuous strategic investments to expand its global footprint while evaluating the performance of existing stores will further boost both its top and bottom lines.

The company currently competes with retailers such as Nike Inc. (NKE) and Under Armour Inc. (UA), which hope to grab market share in active wear or lifestyle consumer products. The athletic apparel industry is characterized by rapidly changing customer preferences and technology. We believe that Lululemon's continuous focus on product innovation will keep it ahead of its competitors.

We are retaining our long-term ‘Outperform’ recommendation on the stock. Currently, Lululemon maintains a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating.

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