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Here's Why lululemon (LULU) is Placed Well for Q2 Earnings Beat

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lululemon athletica inc. (LULU - Free Report) is likely to witness top and bottom-line growth when it reports second-quarter fiscal 2021 results on Sep 8, after market close. The Zacks Consensus Estimate for fiscal second-quarter sales is pegged at $1.34 billion, indicating a 47.9% increase from the prior-year quarter’s reported figure.

The Zacks Consensus Estimate for the company’s fiscal second-quarter earnings stands at $1.20, suggesting a 62.2% rise from 74 cents reported in the year-ago quarter. Earnings estimates have moved up 1.7% in the past 30 days.

The company delivered an earnings surprise of 27.5% in the last reported quarter. Its bottom line beat estimates by 24.1%, on average, in the trailing four quarters.

lululemon athletica inc. Price and EPS Surprise

 

lululemon athletica inc. Price and EPS Surprise

lululemon athletica inc. price-eps-surprise | lululemon athletica inc. Quote

 

Key Factors to Note

lululemon’s quarterly performances have been benefiting from growth across all categories, channels and geographies, led by continued e-commerce expansion and a rebound in in-store sales. Improved footfall at stores as consumers have started moving out for their shopping needs has been boosting in-store sales.

The company has been leveraging its stores to facilitate omni-channel capabilities, including the buy online pick up in store and ship from store. It has implemented several strategies to improve the guest experience and reduce wait time. These include virtual waitlists, mobile POS and appointment shopping. The functionalities enable reducing the time of waiting in line to enter the store as well as allow customers to complete some transactions like returns, exchanges and purchase of gift cards without entering the store. Continued investments to enhance the in-store experience are likely to bolster sales and earnings in the fiscal second quarter.

On the last reported quarter’s earnings call, management noted that the strong business momentum has continued into the second quarter. It predicted flat in-store sales on a two-year CAGR basis for second-quarter fiscal 2021. It anticipated net sales of $1.3-$1.33 billion for the fiscal second quarter, indicating two-year CAGR growth of 21-23%. Adjusted earnings are anticipated to be $1.10-$1.15 per share, whereas it reported 74 cents in the prior-year quarter. Notably, the company reported earnings per share of 96 cents in second-quarter fiscal 2019.

lululemon expects to capture the growing online demand and ensure a robust shopping experience through its accelerated e-commerce investments. It has been investing in site development, building transactional omni functionality and increasing fulfillment capabilities. It plans to boost online category offerings and creative content. Gains from the investments are likely to have supported sales growth in the fiscal second quarter.

On the last reported quarter’s earnings call, the company anticipated e-commerce sales to decline modestly from the prior-year quarter in the fiscal second quarter, as it laps the height of COVID-related channel shifts and online warehouse sales. On a two-year CAGR basis, e-commerce sales are anticipated to increase 55% in the fiscal second quarter.

The company’s fiscal second-quarter gross margin is likely to have reflected continued gains from leverage in occupancy, product team costs and depreciation; and higher product margin, driven by lower markdown than 2019. On the last reported quarter’s earnings call, management expected second-quarter fiscal 2021 gross margin to expand from the COVID-impacted second-quarter 2020 and increase 30-50 bps from second-quarter fiscal 2019. Gross margin growth relative to the fiscal 2019 comparable period can be attributed to higher e-commerce sales along with occupancy cost leverage due to the slowing down of store openings in 2020 and the level of rent reductions.

However, higher airfreight costs and SG&A expenses have been weighing on the company’s bottom line to some extent. On the last reported quarter’s earnings call, the company anticipated the impacts from air freight costs to continue in second-quarter fiscal 2021, owing to port congestions and capacity constraints. It expected SG&A expenses for the fiscal second quarter to deleverage 400 bps from the second quarter of fiscal 2019. The deleveraging is expected to mainly result from higher depreciation due to accelerated investments to support the e-commerce business in 2020 and 2021, the consolidation of MIRROR’s results this year, and COVID-led costs, including labor for stores that remained closed.

What the Zacks Model Unveils

Our proven model conclusively predicts an earnings beat for lululemon this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

lululemon has a Zacks Rank #2 and an Earnings ESP of +3.06%.

Other Stocks Likely to Beat Earnings Estimates

Here are some other companies that you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat.

Boyd Gaming Corporation (BYD - Free Report) has an Earnings ESP of +5.42% and it currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dave & Buster’s Entertainment, Inc. (PLAY - Free Report) has an Earnings ESP of +21.65% and a Zacks Rank #3 at present.

Torrid Holdings Inc. (CURV - Free Report) currently has an Earnings ESP of +6.12% and a Zacks Rank #3.

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