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What to Expect from Lululemon (LULU) When It Reports Earnings

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Lululemon (LULU - Free Report) is a popular athletic brand that has taken a strong hold in the apparel world. Currently sitting at a Zacks Rank #2 (Buy), Lululemon will be posting its earnings report tomorrow, and investors will want to be prepared for what is to come.

Recent Moves

Lululemon stock has steadily increased 34.3% since its 2017 full-year earnings report release in March.

During this time, the company hired Patrick Guido as CFO and is looking to replace former CEO Laurent Potdevin who “fell short of standards of conduct,” according to the company. Despite such drastic changes in leadership, Lululemon keeps rising progressively.

Lululemon’s “A” grade in the Growth category of our Style Scores system is reflective of the company’s recent expansion. Analysts expect the company to see sales growth of 14.2% for the full year, more than quadruple its industry’s average of 2.8%. Meanwhile, its current cash flow growth is at 20.8%, an astonishing five times greater than the industry average.

Still, some of this growth creates an overvaluation of the stock, earning Lululemon an “F” grade in our Value category. With a P/E ratio of 31.1, it is clear to see investors are buying Lululemon stock at a premium relative to the market and industry.

Earnings Forecast

Our Zacks Consensus Estimates put Lululemon Q1 2018 revenue at $616.32 million (+18.5% year-over-year growth) and earnings at $0.45 per share (+40.6%). Q1 estimates have trended slightly upward, and when paired with its continually rising stock, this is a solid trend ahead of the report.

Susquehanna’s Sam Poser says he expects same-store sales to increase 12.7% year over year, in large part due to increased technology through data analytics and a heightened international exposure, focus, and growth.

“Lululemon remains a best-in-class retailer set up for success over a multiyear period…Lululemon knows who they are, why they exist, and commits to their purpose” said Posner.

In a recent survey conducted by MKM Partners of 900+ Lululemon customers, all demographics seem to be increasing in terms of spending and transactions, with an increase in participants who stated that in the future they would spend more. Strong customer support is the basis of any retail company and furthers the confident wave backing Lululemon.

Bottom Line

Lululemon stock has been steadily on the rise for several months now, despite a significant change in leadership and some valuation concerns. Still, with increasing analyst sentiment and strong revenue and earnings estimates, Lululemon could very well produce a strong Q1 2018 earnings report for investors.

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