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Lululemon Athletica, Inc.

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Lululemon Athletica, Inc. (LULU - Free Report) recently hit a new 52-week high as investors look for the company to build on its recent string of earnings surprises with its March 25, Q4 results.

Company Description

Lululemon Athletica, Inc. designs, manufactures and sells athletic apparel for men and woman in the United States, Australia and Canada. The company sells its products through its own 100 plus stores and third-party distributors, has a market cap of $2.36 billion and was founded in 1998.

Third-Quarter Results

Lululemon's last quarterly report from early Dec pleased the Street with results that were ahead of expectations. Sales were up 30% from last year to $113 million. Earnings came in at 20 cents, one penny better than the Zacks Consensus Estimate. Lululemon has been able to produce consistent results over the last year in a challenging consumer environment, surprising in all four quarters by an average of 20%.

The better than expected quarter was driven by same-store sales growth of 10% and the addition of 8 new stores opened since Q3 of 2008. The company is also seeing strong gains from its recent e-commerce initiatives, generating $4.2 million revenue during the quarter.

Margin Expansion

Lululemon has been complimenting its sales growth with cost management strategies and margin expansion, with Sales, General and Administrative costs down almost 2% from last year to 31.4% of revenue and gross profit increasing 180 basis points to 49.9% of revenue.

Strong Balance Sheet

In spite of Lululemon's aggressive growth trajectory, the company has a pristine balance sheet, with $102 million in cash and equivalents and no debt.

Looking ahead, Lululemon plans to open 15 stores in 2010 with an eye on eventually scaling to 300 stores in key markets around the world.

Estimates Steady

Estimates have been mostly flat since the last round of revisions, with the current year pegged at 71 cents and the next-year estimate projecting 33% earnings growth.

Valuation

With all the enthusiasm surrounding the company, it's share price doesn't come cheap, trading with a forward P/E multiple of 47X, a steep premium to the overall market.

The Chart

LULU recently hit a new 52-week high at $33.98 after jumping above some short-term resistance at $32. Look for support in this area on a pullback.

LULU: Lululemon Athletica, Inc. >
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Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Surprise Trader Service.




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