A month has gone by since the last earnings report for lululemon athletica inc. (LULU - Free Report) . Shares have added about 18.9% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is LULU due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
lululemon Beats on Q1 Earnings & Sales, Lifts '18 View
lululemon athletica inc. delivered solid first-quarter fiscal 2018 with both sales and earnings surpassing estimates and improving year over year. While this marked its fifth consecutive earnings beat. The company’s sales topped estimates for the 10th straight quarter.
The strong quarter was mainly driven by synergies from product innovation, international expansion and digital acceleration, which collectively reflect strength of the company’s business. Additionally, results gained from improvement in product margins and cost efficiencies within the company’s supply chain.
In fiscal 2018, lululemon is likely to witness strong momentum across its business while executing growth strategies. Driven by these, the company remains on track to deliver revenues of $4 billion for fiscal 2020.
lululemon posted earnings of 55 cents per share, beating the Zacks Consensus Estimate of 46 cents and rising 71.9% from adjusted earnings per share of 32 cents in the year-ago quarter. Including effects of ivivva’s restructuring, earnings were 23 cents in the first quarter of fiscal 2017.
The Vancouver, Canada-based company’s quarterly revenues advanced about 25% to $649.7 million and surpassed the Zacks Consensus Estimate of $618 million. On a constant-dollar basis, revenues increased 23%. The improvement can be attributed to strong performance across all parts of the business. Further, foreign-currency tailwinds bolstered revenues by $9 million in the reported quarter.
Total comparable store sales (comps), including in-store comps and direct-to-consumer sales, grew 20% while constant-dollar comps were up 19%. In-store comps improved 8% (up 6% on constant-dollars basis) while DTC comps surged 62% (an increase of 60% in constant dollars).
Gross profit rose 31% to $344.7 million in first-quarter fiscal 2018. Moreover, gross margin expanded 270 basis points (bps) to 53.1%, exceeding the company’s expectations. The gross margin was fueled by 120 bps improvement in product margins, backed by favorable product mix, reduced product costs and lower markdowns.
Further, the reported quarter was marked by a 30 bps gain from foreign currency, and 120 bps leverage on occupancy and depreciation as well as product and supply chain SG&A. The company expects to gain from further cost efficiencies within its supply chain, driven by ongoing strategies across sourcing and distribution.
Operating income increased nearly 65% to $104.3 million while the operating margin expanded 400 bps to 16.1%.
During the quarter under review, the company opened seven new stores. As of Apr 29, 2018, the company operated total 411 stores.
For fiscal 2018, it targets opening 40-50 company-operated stores, including 20-30 stores in international locations. The company expects to open three new stores in the fiscal second quarter.
lululemon exited the reported quarter with cash and cash equivalents of $966.6 million and stockholders' equity of $1,636.2 million. Inventories were up 23% at $373.4 million.
As of Apr 29, 2018, lululemon generated $35.8 million as cash flow from operating activities. Further, it spent $34 million toward capital expenditure in first-quarter fiscal 2018, mainly related to store renovations and relocations.
For second-quarter fiscal 2018, lululemon anticipates revenues of $660-$665 million, with constant dollar comps expected to increase in the high-single-digit range. The company projects gross margin to improve 50 bps compared with the year-ago quarter, backed by ongoing supply-chain initiatives. Management anticipates SG&A expense leverage of about 50 bps, driven by efficiencies in its cost structure.
lululemon envisions earnings for the second quarter to be 46-48 cents per share. Effective tax rate is expected to be nearly 30%.
Following the solid start to the fiscal, lululemon updated its outlook for fiscal 2018. The company now projects revenues of $3.04-$3.075 billion compared with $2.985-$3.22 billion projected earlier. The guidance is based on comps growth of high-single digit, on a constant-dollar basis, versus the prior forecast of mid- to high-single-digit comps growth. Its sales and earnings for fiscal 2018 will include a modest benefit from the 53rd week.
The company continues to expect modest gross-margin expansion in fiscal 2018, driven by anticipated gains in product margins and leverage on occupancy and other fixed costs. The company anticipates SG&A expense to leverage modestly, due to efficiencies within its cost structure.
Earnings for the fiscal are now projected to be $3.10-$3.18 per share against the previous guidance of $3-$3.08. The effective tax rate is expected to be 30% in fiscal 2018, slightly higher than the prior forecast of 29%. Tax gains result from the refinements under the new tax reform.
Capital expenditures for fiscal 2018 are estimated to be $240-$250 million, including the ramp-up of renovation and relocation programs, increased store opening in international markets and investments in general infrastructure projects.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. There have been 13 revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 7.8% due to these changes.
lululemon athletica inc. Price and Consensus
At this time, LULU has an average Growth Score of C, however its Momentum is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise LULU has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.