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Is lululemon (LULU) Poised to Post Earnings Beat Again in Q1?

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lululemon athletica inc. (LULU - Free Report) is slated to report first-quarter fiscal 2019 results on Jun 12, after the market closes.

Notably, the company has an impressive surprise history, having delivered eight consecutive earnings beat and 13 straight quarters of positive sales surprise. In the trailing four quarters, it registered an average beat of 19.9%.

What to Expect?

The Zacks Consensus Estimate for fiscal first-quarter earnings stands at 71 cents, suggesting 29.1% growth from the year-ago quarter. Over the past 30 days, the consensus mark has increased by a penny. The consensus estimate for revenues is pegged at $757 million, up about 16.5% from the year-ago quarter.

lululemon athletica inc. Price and EPS Surprise

lululemon athletica inc. Price and EPS Surprise

lululemon athletica inc. price-eps-surprise | lululemon athletica inc. Quote

Year to date, the stock has mirrored profound strength, rallying about 42.1% compared with the industry’s growth of 14%. This outperformance is mainly backed by the smooth execution of the company’s strategies, which position it for compelling long-term growth.


 
Factors Likely to Influence 1Q19

lululemon has been progressing well with its strategy for 2020, which is significantly aiding its performance. This strategy is expected to boost growth via product innovation, building store fleet in North America, broadening of digital business and international expansion. This makes the company optimistic about ending first-quarter fiscal 2019 on a strong note.

Simultaneously, lululemon is focused on enhancing the e-commerce retailing channel, and investing in the innovation of product categories and improving the website. Notably, improved capabilities in personalized digital marketing and data analytics led to traffic and conversion growth at the company’s site in the fiscal fourth quarter. Continued increase in traffic and conversion rates across stores and online has been boosting its comparable store sales (comps) performance, which is likely to continue in the to-be-reported quarter. With constant progress on e-commerce strategy, it remains on track to deliver $4 billion in revenues by 2020.

The company’s efforts to expand operations outside the United States and Canada, particularly in the underpenetrated markets of Europe and Asia, also provide a long-term growth opportunity. Reflecting solid progress on the international front, it recorded total market growth of more than 70% and nearly 60% in Asia and Europe, respectively, in the fiscal fourth quarter. Additionally, lululemon plans to expand its digital reach in international markets, with the launch of local sites in Japan, France and Germany. Overall, the company plans to expand its international base by opening 25-30 stores in fiscal 2019.

Expectations for the Upcoming Quarter

lululemon is likely to have witnessed strong momentum across its business in first-quarter fiscal 2019 and beyond while executing growth strategies. As a result, management issued a solid view for first-quarter and fiscal 2019.

For first-quarter fiscal 2019, lululemon anticipates revenues of $740-$750 million, with constant-dollar comps expected to increase in a low-double digit. The company expects gross margin to expand marginally from the year-ago quarter. This is likely to have resulted from higher product margins alongside an incremental reduction in average unit costs, backed by ongoing supply-chain initiatives to scale efficiencies. Management anticipates SG&A expense rate to be flat to up marginally, driven by consistent investments to boost the top line.

lululemon envisions earnings of 68-70 cents per share for the fiscal first quarter compared with adjusted earnings per share of 55 cents in the year-ago quarter. Effective tax rate is expected to be nearly 28%.

For fiscal 2019, lululemon projects revenues of $3.7-$3.74, with comps growth in a low-double digit on a constant-dollar basis. It expects modest gross margin expansion, driven by anticipated gains in product margins, and leverage on occupancy and other fixed costs. SG&A expenses are likely to leverage modestly. Earnings for the fiscal year are projected to be $4.48-$4.55 per share. Adjusted effective tax rate is expected to be 28% in fiscal 2019.

What Does the Model Say?

Our proven model predicts that lululemon is likely to beat earnings estimates in first-quarter fiscal 2019. A stock needs to have — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

lululemon has an Earnings ESP of +1.57% and a Zacks Rank #2. The combination of the company’s favorable Zacks Rank and a positive Earnings ESP makes us reasonably confident of an earnings beat in the to-be-reported quarter.

Other Stocks Likely to Beat Earnings Estimates

Here are some other companies that you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat.

Helen of Troy Limited (HELE - Free Report) has an Earnings ESP of +0.60% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group, LTD. (GIII - Free Report) has an Earnings ESP of +5.35% and a Zacks Rank #3.

American Eagle Outfitters, Inc. (AEO - Free Report) has an Earnings ESP of +0.47% and a Zacks Rank #3.

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