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lululemon's (LULU) Strategic Efforts Position it for Growth

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Shares of lululemon athletica inc. (LULU - Free Report) are climbing up the charts, courtesy of solid execution of its 2020 strategy, improved focus on ivivva’s remodeling and e-commerce business, and impressive surprise history.

These robust initiatives have aided the stock to outperform the industry and the broader sector in the past six months. While shares of the company surged a whopping 52.1%, the industry and the Consumer Discretionary sector gained 22.3% and 4.7%, respectively.

Let’s take a close look at the factors contributing to this Zacks Rank #3 (Hold) company’s impressive performance.

Robust Strategies

lululemon is progressing well with its strategy for 2020, which aims at doubling revenues to about $4 billion and more than doubling its earnings. Notably, management had outlined four distinct growth strategies under this plan that includes product innovation, building store fleet in North America, expanding digital business and international expansion. With more customers turning to online portals, the company expects this channel to account for over one-third of its sales by 2020.

In addition, the company remains keen on expanding store base overseas and expects its international business, including e-commerce, to account for nearly 20-25% of the total sales by 2020. lululemon plans to expand international base by opening 20-30 international stores in fiscal 2018. Based on its potential to expand square footage and enhance business globally, we believe that the company has a long-term growth opportunity in the industry.

Furthermore, lululemon’s focus on enhancing the e-commerce retailing channel, investing in the innovation of new product categories and bringing improvements to its website is commendable. In fourth-quarter fiscal 2017, its e-commerce comps surged 44%. In fact, the company has been witnessing robust increases in store traffic for a while now, which has been contributing to the results. The expansion of omni-channel capabilities complements lululemon’s digital strategies as well. It has launched the ‘ship from store’ capability in its various locations and plans to roll out the ‘buy-online pick-up in-store’ functionality in the second half of fiscal 2018.

All these attributes have aided lululemon to deliver fourth consecutive earnings beat in fourth-quarter fiscal 2017 with sales topping estimates for the ninth straight quarter. Strong quarterly results along with solid strategic efforts led management to provide an encouraging outlook for the first quarter and fiscal 2018. Earnings per share are envisioned in a band of 44-46 cents for the first quarter and $3-$3.08 for the fiscal year. Earnings guidance reflects substantial growth from 32 cents earned in the first quarter of fiscal 2017 and $2.59 in the fiscal year.

Analysts are confident about the stock as apparent from the rise in its earnings estimates. For fiscal 2018, the Zacks Consensus Estimate of $3.12 moved up by 3 cents in the last seven days.

Bottom Line

Although stiff competition and volatile consumer spending patterns might weigh on the company’s margins, we believe lululemon’s solid strategies should offset these hurdles.

Notably, lululemon has a Growth Score of A and long-term earnings growth rate of 13.2%, which speaks well of its inherent potential.

Want More of Textile-Apparel Stocks? Check These

Delta Apparel, Inc. (DLA - Free Report) has pulled off an average positive earnings surprise of 71.2% in the trailing four quarters. The company has a long-term earnings growth rate of 15% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tailored Brands, Inc. (TLRD - Free Report) delivered an average positive earnings surprise of 50.9% in the trailing four quarters. Moreover, it has an impressive long-term earnings growth rate of 16.5% and a Zacks Rank #2 (Buy).

Ralph Lauren Corporation (RL - Free Report) , also a Zacks Rank #2 stock, delivered an average earnings beat of 10.4% in the trailing four quarters. It also has a long-term earnings growth rate of 10.2%.

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