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lululemon Surges 57% in 2018, Momentum to Continue in 2019

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lululemon athletica inc. (LULU - Free Report) has witnessed strong momentum throughout 2018, with its stock price surging as high as 56.9% year to date. This reflects a significant outperformance against the industry’s decline of 3.6% and the S&P 500 index’s downtrend of 7.6%. The positive stock movement is attributed to this yoga-inspired retailer’s robust surprise trend driven by the progress on its strategy for 2020, with stringent focus on digital and international growth.


lululemon delivered earnings and sales beat in third-quarter fiscal 2018, marking its seventh consecutive earnings beat, while sales topped estimates for the 12th straight quarter. The strong fiscal third-quarter results reflected broad-based growth across all categories, channels and geographies. Moreover, the top and bottom lines improved nearly 34% and 21% year over year, respectively. The stellar results in the last reported quarter also marked an outperformance compared with its peer group.

A comparative analysis shows that revenues for Ralph Lauren (RL - Free Report) improved 1.6%, while earnings per share rose 13.6% in the last reported quarter. Additionally, G-III Apparel’s (GIII - Free Report) revenues rose 4.7% to $1,073 million in the last reported quarter driven by stellar show in the wholesale operations. Meanwhile, earnings per share improved 12.6% year over year. Clearly, lululemon registered better earnings and sales growth rates compared to its peers.

Additionally, a closer look at the stocks in the broader industry shows that lululemon stock is trading quite ahead of the peer group. Stocks such as Columbia Sportswear (COLM - Free Report) and Guess? (GES - Free Report) have climbed 17.8% and 20.3%, respectively, year to date. Let’s delve deeper and find out the factors that are likely to help retain the uptrend in lululemon’s stock in 2019.

Factors to Aid Growth

Continued traffic and conversion growth in both stores and e-commerce sites, driven by improved capabilities in personalized digital marketing and data analytics, are likely to bolster lululemon’s sales and comparable store sales (comps). Notably, traffic at stores improved in the high-single digit in third-quarter fiscal 2018, while it rose more than 35% at e-commerce sites.

Going forward, lululemon is likely to witness strong momentum across its business while executing growth strategies. Consequently, management provided a solid view for the fiscal fourth quarter and raised its guidance for fiscal 2018. For fourth-quarter fiscal 2018, lululemon anticipates revenues of $1.115-$1.125 billion, with constant-dollar comps expected to increase in the high-single digit to low-double digits. Further, it envisions earnings of $1.64-$1.67 per share for the fiscal fourth quarter.

The company now projects revenues of $3.235-$3.245 billion compared with $3.185-$3.235 billion mentioned earlier. The guidance is based on comps growth of mid-teens on a constant-dollar basis versus the previously mentioned low-teens comps growth. Earnings for the fiscal year are now projected to be $3.65-$3.68 per share compared with the previous guidance of $3.45-$3.53.

Additionally, lululemon sees immense growth opportunities through focus on digital growth and international expansion. The company is strongly focused on enhancing the e-commerce retailing channel and investing in the innovation of new product categories, and bringing improvements to its website. Notably, e-commerce contributed $189 million or 25% to total sales in the fiscal third quarter, which keeps it ahead of schedule in reaching its target of 25% full-year penetration in 2020.

lululemon has an unmatched level of long-term growth opportunity in the industry, based on its potential to expand square footage and enhance business globally. It remains focused on expanding operations outside the U.S. and Canada, particularly in the European and Asian markets. This is evident from the total market growth of 50%, each recorded in Asia and Europe in the fiscal third quarter. Overall, the company plans to expand international base by opening 20-25 international stores in fiscal 2018.

Conclusion

Clearly, there is significant momentum left in the stock of this Vancouver-based athletic apparel company, driven by its growth efforts and strong position in the market. This view is further supported by the Zacks Rank #2 (Buy) company’s impressive long-term earnings growth rate of 19.3% and a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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