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Lululemon Athletica Inc. (LULU - Free Report) delivered strong results for first-quarter fiscal 2017, wherein both sales and earnings topped estimates and improved year over year. Further, the company announced plans to remodel its ivivva business into an online brand. Backed by its efforts to strengthen eCommerce business, the company revised guidance for fiscal 2017 and initiated the fiscal second-quarter outlook.
Further, shares of this Zacks Rank #3 (Hold) company jumped 16.1% in the after-hours trading session following the solid fiscal first-quarter results and plans to restructure ivivva operations. On a year-to-date basis, however, the company’s stock has declined 13.9%, wider than the Zacks categorized Textile – Apparel industry’s fall of 8.5%.
Q1 Highlights
Lululemon posted adjusted earnings of 32 cents per share, ahead of the Zacks Consensus Estimate of 28 cents and up 6.7% from 30 cents earned in the year-ago quarter. Also, the bottom line exceeded the company’s guidance range of 25–27 cents per share.
lululemon athletica inc. Price, Consensus and EPS Surprise
The improvement can be attributed to the sustained top-line growth and enhanced product margins driven by gains from its efforts to improve supply chain. Further, the company’s constant efforts toward achieving the long-term goal of doubling revenues and more than doubling the bottom line aided results.
Looking at the top line, the Vancouver, Canada-based company’s quarterly revenues advanced 5% to $520.3 million and beat the Zacks Consensus Estimate of $513 million. On a constant dollar basis too, revenue increased 5%. The improvement can be attributed to new store openings.
Total comparable store sales (comps), including in-store comps and direct-to-consumer sales, dipped 1% on both reported and constant-dollar basis. In-store comps were down 2%, while direct-to-consumer sales remained flat year over year. On constant-dollar basis, in-store comps declined 1%.
Ivivva Strategy
Lululemon plans to evolve ivivva – its activewear brand, into an eCommerce focused business, with only eight ivivva stores operating across North America. The company plans to close about 40 of the total 55 ivivva stores and convert nearly half of the remaining stores into lululemon branded stores. The company will also shut down 16 ivivva showrooms and other temporary stores, in order to streamline corporate infrastructure. The company expects these closures to be completed by the end of third-quarter fiscal 2017.
Additionally, the company incurred about $17.7 million in pre-tax costs related to the restructuring plan in the fiscal first quarter. For fiscal 2017, the company anticipates attracting total pre-tax restructuring charges of about $50–$60 million. These charges primarily relate to long-lived asset impairment and lease termination costs.
Quarter in Detail
Adjusted gross profit rose 10% to $262.3 million in first-quarter fiscal 2017. Moreover, adjusted gross margin expanded 210 basis points (bps) to 50.4%. The gross margin was fueled by 380 bps improvement in product margins owing to lower F&B costs, increased average unit retail and slight gains in air freight, along with efforts to improve supply chain.
Adjusted operating income increased 10% to nearly $63.2 million. Further, operating income margin grew 50 bps to 12.1%.
Store Update
During the fiscal first quarter, the company opened five net new company-operated stores. This included two stores in the U.S., two in Asia and one in Europe.
As of Apr 30, 2017, the company operated a total of 411 stores. Additionally, it operated a total of 48 showrooms, including 30 in North America and 18 internationally.
For fiscal 2017, the company reiterated its target of opening up to 50 new company-operated stores, with total square footage expanding in the low-double digits. Of the stores planned for the fiscal, about 15 are expected to be opened in international locations. In the fiscal second quarter, the company plans to open about eight new stores.
Financials
Lululemon exited fiscal first quarter with cash and cash equivalents of $698.3 million and stockholders' equity of $1,347.7 million. Inventories increased 6% to $303.9 million.
In first-quarter fiscal 2017, Lululemon generated about $19.4 million as cash flow from operating activities. Further, the company spent $19.9 million as capital expenditure in the fiscal first quarter.
In the quarter, the company bought back $12.8 million worth of shares, completing its recent share repurchases authorization of $100 million.
Guidance
Going into fiscal second-quarter 2017, Lululemon remains impressed with its efforts to build upon eCommerce sales trends. The company notes that eCommerce comps remain in the positive low-double digits range so far in the quarter. Further, the company continues to see immense opportunities ahead. Further, the company stated that the guidance for the second quarter and fiscal 2017 excludes any impact from the ivivva restructuring.
For the fiscal second quarter, Lululemon anticipates revenues in the range of $565–$570 million, with constant dollar comps expected to increase in the range of low to mid-single digits. Further, this reflects eCommerce comps growth in the low to mid-teens range.
The company expects adjusted gross margin to expand nearly 100 bps year over year in the fiscal second quarter. This upside is likely to be driven by improvement in product margins offset by occupancy and depreciation trends at par with the fiscal first quarter.
However, the company predicts SG&A expenses deleverage of about 350 bps in second-quarter fiscal 2017, an increase from the original guidance. This is mainly related to the one-time expenditures to expand eCommerce business, along with brand and community investments related to the new global brand campaign launched in May as well as IT spends for key projects.
Lululemon anticipates adjusted earnings for the fiscal second quarter to be in the band of 33-35 cents per share, much lower than the current Zacks Consensus Estimate of 41 cents. Further, the guidance is short of the company’s prior-year earnings figure of 38 cents per share. The earnings guidance includes about 4–5 cents per share impact from expense related to the ongoing digital acceleration work.
For fiscal 2017, Lululemon now projects sales to range from $2.53–$2.58 billion, down from the previous forecast of $2.55–$2.60 billion. The guidance is based on low-single digits comps growth on a constant dollar basis. This growth reflects the planned closure of ivivva stores and the related reduction in revenues, offset by the strengthening of the eCommerce business.
The company expects gross margin to increase 50–100 bps year over year in fiscal 2017 backed by solid product margin improvements in the fiscal first half, which will moderate in the second half. This will be offset by higher product and supply chain costs as well as increase in occupancy and depreciation expenses due to increased opening of international stores that carry higher occupancy.
Further, the company now anticipates SG&A expense to deleverage 50–100 bps driven by one-time digital investments. As the work in digital development near completion, the company expects SG&A rate to moderate in second-half fiscal 2017 and decline in fiscal fourth quarter. Earnings for the fiscal year are now projected in a band of $2.28–$2.38 per share, up from the previous guidance of 2.26–$2.36 per share.
Capital expenditures for fiscal 2017 are estimated in the range of $175–$180 million, marking an increase from the previous guidance of $170–$175 million. Capital expenditures mainly include new store openings, renovation, relocation capital along with strategic IT and supply chain capital investments. The increase in guidance reflects higher investments to strengthen digital business as well as additional capital for new and remodeled stores.
Gildan Activewear has gained 15.8% year to date. Further, the company has a long-term earnings growth rate of 12.3%.
PVH Corp., with a long-term earnings growth rate of 11.2%, has gained 17.7% in the year-to-date period.
Tailored Brands has a long-term earnings growth rate of 16.5%. Further, the company has witnessed positive estimate revisions for the current fiscal in the last 30 days.
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Image: Bigstock
Lululemon (LULU) Tops Q1 Earnings, Plans ivivva Remodeling
Lululemon Athletica Inc. (LULU - Free Report) delivered strong results for first-quarter fiscal 2017, wherein both sales and earnings topped estimates and improved year over year. Further, the company announced plans to remodel its ivivva business into an online brand. Backed by its efforts to strengthen eCommerce business, the company revised guidance for fiscal 2017 and initiated the fiscal second-quarter outlook.
Further, shares of this Zacks Rank #3 (Hold) company jumped 16.1% in the after-hours trading session following the solid fiscal first-quarter results and plans to restructure ivivva operations. On a year-to-date basis, however, the company’s stock has declined 13.9%, wider than the Zacks categorized Textile – Apparel industry’s fall of 8.5%.
Q1 Highlights
Lululemon posted adjusted earnings of 32 cents per share, ahead of the Zacks Consensus Estimate of 28 cents and up 6.7% from 30 cents earned in the year-ago quarter. Also, the bottom line exceeded the company’s guidance range of 25–27 cents per share.
lululemon athletica inc. Price, Consensus and EPS Surprise
lululemon athletica inc. Price, Consensus and EPS Surprise | lululemon athletica inc. Quote
The improvement can be attributed to the sustained top-line growth and enhanced product margins driven by gains from its efforts to improve supply chain. Further, the company’s constant efforts toward achieving the long-term goal of doubling revenues and more than doubling the bottom line aided results.
Looking at the top line, the Vancouver, Canada-based company’s quarterly revenues advanced 5% to $520.3 million and beat the Zacks Consensus Estimate of $513 million. On a constant dollar basis too, revenue increased 5%. The improvement can be attributed to new store openings.
Total comparable store sales (comps), including in-store comps and direct-to-consumer sales, dipped 1% on both reported and constant-dollar basis. In-store comps were down 2%, while direct-to-consumer sales remained flat year over year. On constant-dollar basis, in-store comps declined 1%.
Ivivva Strategy
Lululemon plans to evolve ivivva – its activewear brand, into an eCommerce focused business, with only eight ivivva stores operating across North America. The company plans to close about 40 of the total 55 ivivva stores and convert nearly half of the remaining stores into lululemon branded stores. The company will also shut down 16 ivivva showrooms and other temporary stores, in order to streamline corporate infrastructure. The company expects these closures to be completed by the end of third-quarter fiscal 2017.
Additionally, the company incurred about $17.7 million in pre-tax costs related to the restructuring plan in the fiscal first quarter. For fiscal 2017, the company anticipates attracting total pre-tax restructuring charges of about $50–$60 million. These charges primarily relate to long-lived asset impairment and lease termination costs.
Quarter in Detail
Adjusted gross profit rose 10% to $262.3 million in first-quarter fiscal 2017. Moreover, adjusted gross margin expanded 210 basis points (bps) to 50.4%. The gross margin was fueled by 380 bps improvement in product margins owing to lower F&B costs, increased average unit retail and slight gains in air freight, along with efforts to improve supply chain.
Adjusted operating income increased 10% to nearly $63.2 million. Further, operating income margin grew 50 bps to 12.1%.
Store Update
During the fiscal first quarter, the company opened five net new company-operated stores. This included two stores in the U.S., two in Asia and one in Europe.
As of Apr 30, 2017, the company operated a total of 411 stores. Additionally, it operated a total of 48 showrooms, including 30 in North America and 18 internationally.
For fiscal 2017, the company reiterated its target of opening up to 50 new company-operated stores, with total square footage expanding in the low-double digits. Of the stores planned for the fiscal, about 15 are expected to be opened in international locations. In the fiscal second quarter, the company plans to open about eight new stores.
Financials
Lululemon exited fiscal first quarter with cash and cash equivalents of $698.3 million and stockholders' equity of $1,347.7 million. Inventories increased 6% to $303.9 million.
In first-quarter fiscal 2017, Lululemon generated about $19.4 million as cash flow from operating activities. Further, the company spent $19.9 million as capital expenditure in the fiscal first quarter.
In the quarter, the company bought back $12.8 million worth of shares, completing its recent share repurchases authorization of $100 million.
Guidance
Going into fiscal second-quarter 2017, Lululemon remains impressed with its efforts to build upon eCommerce sales trends. The company notes that eCommerce comps remain in the positive low-double digits range so far in the quarter. Further, the company continues to see immense opportunities ahead. Further, the company stated that the guidance for the second quarter and fiscal 2017 excludes any impact from the ivivva restructuring.
For the fiscal second quarter, Lululemon anticipates revenues in the range of $565–$570 million, with constant dollar comps expected to increase in the range of low to mid-single digits. Further, this reflects eCommerce comps growth in the low to mid-teens range.
The company expects adjusted gross margin to expand nearly 100 bps year over year in the fiscal second quarter. This upside is likely to be driven by improvement in product margins offset by occupancy and depreciation trends at par with the fiscal first quarter.
However, the company predicts SG&A expenses deleverage of about 350 bps in second-quarter fiscal 2017, an increase from the original guidance. This is mainly related to the one-time expenditures to expand eCommerce business, along with brand and community investments related to the new global brand campaign launched in May as well as IT spends for key projects.
Lululemon anticipates adjusted earnings for the fiscal second quarter to be in the band of 33-35 cents per share, much lower than the current Zacks Consensus Estimate of 41 cents. Further, the guidance is short of the company’s prior-year earnings figure of 38 cents per share. The earnings guidance includes about 4–5 cents per share impact from expense related to the ongoing digital acceleration work.
For fiscal 2017, Lululemon now projects sales to range from $2.53–$2.58 billion, down from the previous forecast of $2.55–$2.60 billion. The guidance is based on low-single digits comps growth on a constant dollar basis. This growth reflects the planned closure of ivivva stores and the related reduction in revenues, offset by the strengthening of the eCommerce business.
The company expects gross margin to increase 50–100 bps year over year in fiscal 2017 backed by solid product margin improvements in the fiscal first half, which will moderate in the second half. This will be offset by higher product and supply chain costs as well as increase in occupancy and depreciation expenses due to increased opening of international stores that carry higher occupancy.
Further, the company now anticipates SG&A expense to deleverage 50–100 bps driven by one-time digital investments. As the work in digital development near completion, the company expects SG&A rate to moderate in second-half fiscal 2017 and decline in fiscal fourth quarter. Earnings for the fiscal year are now projected in a band of $2.28–$2.38 per share, up from the previous guidance of 2.26–$2.36 per share.
Capital expenditures for fiscal 2017 are estimated in the range of $175–$180 million, marking an increase from the previous guidance of $170–$175 million. Capital expenditures mainly include new store openings, renovation, relocation capital along with strategic IT and supply chain capital investments. The increase in guidance reflects higher investments to strengthen digital business as well as additional capital for new and remodeled stores.
Stocks to Consider
Better-ranked stocks in the same industry include Gildan Activewear Inc. (GIL - Free Report) , PVH Corp. (PVH - Free Report) and Tailored Brands Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Gildan Activewear has gained 15.8% year to date. Further, the company has a long-term earnings growth rate of 12.3%.
PVH Corp., with a long-term earnings growth rate of 11.2%, has gained 17.7% in the year-to-date period.
Tailored Brands has a long-term earnings growth rate of 16.5%. Further, the company has witnessed positive estimate revisions for the current fiscal in the last 30 days.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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