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Will Lululemon's (LULU) Upbeat Earnings Trend Continue in Q2?

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Lululemon Athletica Inc. (LULU - Free Report) is set to release second-quarter fiscal 2017 results on Aug 31. The question lingering in investors’ minds is if this yoga-inspired athletic apparel company will be able to deliver a positive earnings surprise in the to-be reported quarter.

In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 5.7%. In the last reported quarter, the company delivered a positive earnings surprise of 14.3%. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is 35 cents, reflecting a year-over year decline of 7.9%. We note that the Zacks Consensus Estimate has been stable in the last 30 days. On the positive side, analysts polled by Zacks expect revenues of $567.5 million, up about 10.3% from the year-ago quarter.

Factors at Play

Lululemon’s shares have outperformed the industry in the last three months, mainly owing to solid first-quarter fiscal 2017 results. The company’s shares increased 25.5%, ahead of the industry's growth of 9.4%.

Further, the company is on track to utilize its capabilities built in fiscal 2015 over the next five years. In fact, by 2020, it aims to double revenues to about $4 billion along with more than doubling its earnings. With regard to international expansion, the company remains keen on expanding store base overseas and anticipates international business, including e-commerce, to account for nearly 20-25% of the total sales by 2020. Moreover, Lululemon’s e-commerce growth initiatives and ivivva remodeling bode well. We note that the company’s e-commerce comps improved in the low-double digits range at the start of the fiscal second quarter, which led to solid comps guidance for the quarter.

The company guides e-commerce comps growth in the low to mid-teens range in the second quarter. Further, 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.

While its efforts to build upon e-commerce sales are paying off, in-store comps continue to be weak due to the soft traffic trends in the retail sector. This is likely to have a bearing on the company’s otherwise strong comps guidance for second-quarter and fiscal 2017. Management tweaked revenue forecast for fiscal 2017, which indicates further trouble down the road. Given the mixed signals, let’s wait and see if Lululemon can counter the aforementioned obstacles with growth initiatives.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Lululemon is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Lululemon currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 35 cents. The combination of Lululemon’ Zacks Rank #3 and ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

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

Dave & Buster's Entertainment, Inc. (PLAY - Free Report) has an Earnings ESP of +2.75% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Restoration Hardware Holdings Inc. (RH - Free Report) has an Earnings ESP of +2.88% and a Zacks Rank #3.

Zumiez, Inc. has an Earnings ESP of +16.67% and a Zacks Rank #3.

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