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Forget Nike (NKE), Lululemon (LULU) Stock is a Strong Buy Right Now

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Nike (NKE - Free Report) is set to report its quarterly earnings results after the closing bell Tuesday. But as investors continue to pour into NKE, let’s see why Lululemon (LULU - Free Report) looks like a strong buy stock right now.

Overview

Lululemon is coming off an impressive second quarter that saw its revenues surge 25% to hit $723.5 million. The yoga apparel firm’s adjusted quarterly earnings skyrocketed over 97% from $0.36 per share to $0.71 per share, which crushed our Zacks Consensus Estimate of $0.49. Plus, LULU’s comparable store sales jumped 10%.

Equally important was Lululemon’s e-commerce growth, which is something Nike, Adidas (ADDYY - Free Report) , Under Armour (UAA - Free Report) , and many other retailers remain committed to. LULU’s direct-to-consumer revenues soared 48%. This helped the Canadian retailer’s e-commerce revenues account for 23.1% of total Q2 revenues, up from 19.5% in the year-ago period. Going forward, LULU also wants to expand in Asia and Europe since roughly 73% of its current company-operated stores are located in the U.S., Canada, and Australia/New Zealand (also read: A Comprehensive Nike Q1 Earnings Preview, Plus Some Under Armour & Gap News).

On top of Lululemon’s indivudal strength, the athleisure industry as a whole is projected to remain strong. “The athleisure movement and influence on fashion continues to be a primary driver of growth opportunity for the apparel industry,” NPD’s chief industry advisor-retail, Marshal Cohen, said in a company statement.

“Other apparel categories are declining, which tells us that consumers are getting just what they need and want in athleisure wear. There is no doubt that the category will continue to evolve but it’s definitely here to stay for the foreseeable future.”

The overall strength of athleisure is evidenced by the growth of Gap’s (GPS - Free Report) Athleta brand and the retailer’s launch of a new men’s counterpart, Hill City. Similarly, Lululemon management recently reiterated their goal to expand its men’s category to $1 billion by 2020 as it tries to hit $4 billion overall.

Stock Performance

Shares of LULU have climbed 101% since the start of the year and 167% during the last 12 months. This growth destroys the S&P 500’s 17% expansion over the past year and its industry’s 39%. The last six months have been exceedingly strong for Lululemon stock and investors will notice its outsized performance dates back over the last three years as well.

 

Growth Outlook

Now let’s take a look at what to expect from Lululemon going forward since that is what matters most. Our current Zacks Consensus Estimate is calling for the company’s Q3 revenues to jump by 18.24% to reach $731.91 million. The company’s full-year revenues are projected to hit $3.23 billion, which would mark a 21.78% climb.                        

At the other end of the income statement, LULU’s adjusted quarterly earnings are expected to expand by 21.43% to hit $0.68 per share. Lululemon’s full-year EPS figure is projected to soar by 37.07% to $3.55 per share.

Bottom Line

Lastly, Lululemon has received 12 upward earnings estimate revisions for its current quarter over the last 30 days, against zero downward changes. During this same period, LULU has earned 16 earnings estimate revisions for fiscal 2018 and 13 for the following year, with 100% agreement to the upside. This means that earnings sentiment is headed in the right direction. It is also worth remembering that earnings growth is one of the few proven factors that contributes to long-term stock price growth.

Lululemon’s positive earnings estimate revision activity helps the company earn a Zacks Rank #1 (Strong Buy). The company also sports an “A” grade for Growth in our Style Scores system.

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