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Will Lululemon (LULU) Keep Earnings Streak Alive in Q1?

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lululemon athletica inc. (LULU - Free Report) is slated to report first-quarter fiscal 2018 results on May 31. The question lingering in investors’ minds is whether this yoga-inspired athletic apparel retailer will be able to deliver another positive earnings surprise in the to-be-reported quarter.

The company pulled off a positive earnings surprise of 4.7% in the previous quarter. In the trailing four quarters, lululemon surpassed the Zacks Consensus Estimate by an average of 9.5%. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the quarter under review is pegged at 45 cents per share, reflecting year-over-year growth of 40.6%. However, estimates were stable in the last 30 days. Further, analysts polled by Zacks expect revenues of $616.3 million, up about 18.5% from the year-ago quarter.

Moreover, lululemon’s share price has increased 27.8% in the last three months compared with the industry’s growth of 9.9%.



Factors in Play

lululemon is gaining from progress on its strategy for 2020 and focus on ivivva’s remodeling. Notably, the company has delivered positive earnings surprise in four straight quarters while sales topped estimates for nine consecutive quarters.

lululemon is benefiting from synergies due to the re-launch of its website, which led to 42% e-commerce growth. Improvements in product margins and cost efficiencies, as well as scaling of product innovation, international expansion and the introduction of new store formats, are also aiding results.

In fiscal 2018, the company is likely to witness strong momentum across its business while executing on its growth strategies. Consequently, it provided an encouraging outlook for the first quarter and fiscal 2018.

Moreover, lululemon projects revenues of $2.985-$3.22 billion for fiscal 2018, backed by mid- to high-single-digit comps growth on a constant-dollar basis. Its sales and earnings for the fiscal will include a modest benefit from the 53rd week. Earnings are projected in a band of $3-$3.08 per share.

However, stiff competition and volatile consumer spending patterns may pose concerns. The rise in competition has been a threat to the company’s margins.

What the Zacks Model Unveils

Our proven model shows that lululemon is likely to beat earnings estimates this quarter. 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. Earnings ESP of +0.07% and the company’s Zacks Rank #3 make us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks with Favorable Combination

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

PVH Corp. (PVH - Free Report) has an Earnings ESP of +0.56% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General Corp. (DG - Free Report) has an Earnings ESP of +1.97% and a Zacks Rank #2.

Ulta Beauty Inc. (ULTA - Free Report) has an Earnings ESP of +0.46% and a Zacks Rank #2.

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