Lululemon Raised 4Q Outlook

The Canadian yoga-wear retailer, Lululemon Athletica Inc. (LULU - Snapshot Report) updated its fourth-quarter fiscal 2012 guidance on Monday. The holiday season is over and most of the companies have obtained a fair idea regarding their fourth-quarter performance; hence, they are updating their forecasts for the quarter.

On the back of high-single-digit sales growth expectation at comparable-stores (comps), the company anticipates its revenue for the fourth quarter to be at the higher-end of previously guided range of $475–$480 million.

Moreover, Lululemon has raised its earnings guidance to 74 cents per share, up from its earlier guidance range of 71–73 cents per share. Further, the company revealed that gross margin is expected to be somewhat ahead of the forecast and inventories were favorable.

However, despite the upbeat fourth-quarter guidance, the shares of Lululemon tumbled approximately 6.9% to $67.31 on Monday in the after-hour market trading, as the provided outlook remains below the analysts’ expectations. The current Zacks Consensus Estimates for revenue and earnings per share are pegged at $489 million and 74 cents, respectively.

Moreover, looking at Lululemon’s past comps performances, its comps growth has slowed sharply. In the trailing six quarters, the company registered an average comps growth of approximately 15%.

Our Recommendation

We believe that Lululemon has the ability to drive impressive top-line growth by focusing on e-Commerce retailing channel, international expansion and investment in innovating newer product categories. Further, the company is well positioned to attract new consumers due to a shift in focus of the consumers toward a healthy lifestyle.

However, we remain slightly cautious over the stock due to sluggish comps growth and intense competition. Thus, we are maintaining a long-term ‘Neutral’ recommendation on the stock.

Currently, Lululemon holds Zacks Rank #3 (Hold). The company mainly competes with Nike Inc. (NKE - Analyst Report) and Under Armour Inc. (UA - Snapshot Report) having Zacks Rank #2 (Buy) and #4 (Sell), respectively.