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Buy Lululemon (LULU) Stock Before Q1 Earnings as It Ups Fight Against Nike?

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Shares of Lululemon (LULU - Free Report) have soared over 42% in 2019 to crush its industry’s 17% jump. The yoga apparel and athleisure giant has big plans for growth, which includes menswear expansion and e-commerce growth. So, let’s see if investors should buy Lululemon stock heading into its first-quarter fiscal 2019 earnings results?

Quick Retail Overview

Lululemon operates a relatively unique business, especially compared to some of the retail bellwethers. But it is worth quickly looking at how other firms have performed to get a better sense of the bigger retail picture. Target (TGT - Free Report) and Walmart (WMT - Free Report) both showed once again that their digital initiatives and delivery expansion have helped them fight off Amazon’s (AMZN - Free Report) encroachment. Meanwhile, Victoria’s Secret owner L Brands (LB - Free Report) saw its stock price surge Thursday morning after it posted stronger-than-expected sales and earnings

On the other hand, department stores like Macy’s (M), J.C. Penney (JCP - Free Report) , Kohl's (KSS - Free Report) , and Nordstrom (JWN - Free Report) have had a much more difficult time adapting to the Amazon-obsessed retail age. As of Wednesday, Q1 results from 71.8% of the Retail sector stocks in the S&P 500 were out. Overall earnings jumped 13.7% and revenues climbed 8.3%, with 75% beating EPS estimates and 53.6% beating revenue estimates (also read: Retail Sector Fails to Impress).

 

 

LULU Overview & Growth Plans

As we mentioned at the top, LULU stock has been on a tear this year. The last five years have also seen shares of Lululemon outperform its industry and giants such as Nike (NKE - Free Report) . Shares of LULU opened Thursday at $173.56, down slightly from their 52-week intraday trading high of $179.50.

Lululemon helped create some of the current trends in fashion that prompted Adidas (ADDYY - Free Report) , Puma and Nike to expand their athleisure lines. On top of its widely popular women’s yoga apparel, Lululemon currently sells men’s and women’s jackets for as much as $600 as it tries to compete against Canada Goose (GOOS - Free Report) , V.F. Corporation’s VFC The North Face, Columbia Sportswear COLM and other higher-end brands. Lululemon also sells shoes, accessories, as well as more work-appropriate and fashion-focused offerings for both men and women. Plus, Lululemon is testing out a new loyalty program and has jumped into the self-care market.

Last month, LULU management laid out its new five-year growth plans. Lululemon expects to more than double the size of its men’s revenues by 2023 as part of its “Power of Three Growth Strategy.” Executives also expect to more than double its digital revenue during this period and quadruple its international revenues. This expansion includes the firm’s presence across social media outlets, such as Instagram (FB - Free Report) , and a deeper push into China and beyond. For reference, Lululemon ended the fourth quarter with 440 total company-operated stores, up from 404 in the year-ago period.

Outlook & Earnings Trends

The athleisure firm is coming off a Q4 that saw its revenue jump nearly 26% to $1.2 billion, which topped Q4 2017’s 17.6% expansion. With that in mind, our current Zacks Consensus Estimate calls for the company’s first-quarter revenue to jump 16.5% to reach $757.03 million. Plus, the firm’s full-year revenues are projected to climb over 14.4% and touch $3.76 billion.

At the bottom end of the income statement, Lululemon is projected to see its adjusted first-quarter earnings climb over 29% to hit $0.71 a share. Peeking ahead, the athletic apparel company’s full-year EPS figure is expected to jump 21.6%. We should also note that LULU has seen a ton of positive earnings estimate revision activity recently, especially for fiscal 2019 and 2020.

 

 

Bottom Line

Lululemon’s strong earnings estimate revision activity helps it earn a Zacks Rank #1 (Strong Buy) at the moment. The company also sports an “A” grade for Growth in our Style Scores system. It is worth noting that LULU is trading at 7x sales, which is well above its industry’s 0.81 price/sales ratio. But Lululemon stock has soared compared to its industry’s average.  

In the end, buying stocks before earnings is never an easy task because it’s too hard to know how Wall Street will react even to the ‘strongest’ of reports. Yet, Lululemon stock clearly appears to be one that investors should consider.

Lululemon is projected to release its Q1 fiscal 2019 financial results on Thursday, May 30. So, make sure to come back to Zacks after the firm reports its actual quarterly metrics.  

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