Lululemon (LULU - Free Report) shares have skyrocketed over 100% in the last 12 months to destroy the S&P 500, its industry, and giants Nike (NKE - Free Report) and Adidas (ADDYY - Free Report) .
LULU has historically traded heavily around earnings. So, should investors consider buying LULU stock with the athleisure apparel company set to report its Q3 fiscal 2019 results on Wednesday, December 11?
Lululemon truly came of age in the e-commerce shopping era and it operates a mostly direct-to-consumer business. The Vancouver-based company’s success helped jump start the athleisure market and changed the face of casual fashion over the last decade. LULU’s success has forced everyone from Gap (GPS - Free Report) and L Brands’ (LB - Free Report) Victoria’s Secret to Target (TGT - Free Report) all to roll out their own athleisure brands and styles.
LULU’s ability to expand its reach in the digital age has been vital. The company has also achieved huge success through its own stand-alone brick and mortar expansion, as the likes of Nordstrom (JWN - Free Report) , Macy’s (M - Free Report) , and other department stores fade. The firm closed the second quarter with 460 stores, up from 415 in the year-ago period, most of which are in the U.S., Canada, and Australia/New Zealand.
Along with its successful women’s athleisure and athletic offerings, the firm has pushed further into outwear and hopes to compete against Canada Goose (GOOS - Free Report) and The North Face (VFC - Free Report) . Lululemon also now sells far more work-appropriate clothing, self-care products, and quickly expanded its menswear business.
Lululemon executives expect to more than double the size of the company’s menswear business by 2023. Plus, the firm projects that it will more than double its digital revenue and quadruple its international sales, which includes a larger push in Asia. The company has also started to test a loyalty program and opened its first “experiential” store in Chicago, which features a yoga studio and more.
Investors can see in the chart above just how strong LULU stock has been, up 411% in the last five years, against Nike’s 98%—clearly, the two firms are at very different stages in their history. With that said, much of this recent expansion has come since the summer of 2017, with Lululemon shares up 372% since it posted its Q1 fiscal 2017 results in early June.
The stock has barely missed a step since then, aside from suffering as part of the broader Q4 2018 selloff. As we mentioned at the top, shares of LULU have surged over 100% in the last 12 months and are up 13% since the start of November. In fact, the stock touched another brand new high Friday.
Along with this rise, as one might anticipate, has come a somewhat stretched valuation picture. LULU is currently trading at 6.9X forward 12-month sales estimates, which is far above its industry 1.9X average and its own five-year median of 4X.
Lululemon also holds a forward P/E of 42.3, well about its 29X median during this same stretch—both mark all-time highs.
Outlook & Earnings Trends
Last quarter, LULU’s sales surged 22%. Second-quarter comparable sales popped 17%, with in-store sales up 11% and e-commerce up 31%.
Meanwhile, men’s sales surged 35% and international revenue popped 34%. Overall, e-commerce revenue accounted for roughly 25% of total revenue, up from 23% in the prior-year quarter.
Looking ahead, LULU’s third quarter revenue is projected to jump 19.9% to $896.5 million, based on our current Zacks estimates. This would mark a slowdown against Q2 and Q1. In fact, our estimate would mark its slowest top-line expansion in six quarters.
However, the athletic apparel firm’s full-year 2019 sales are projected to climb 17.9% to reach $3.88 billion, with 2020 projected to come in 15% higher at $4.44 billion. This would mark the continuation of strong growth after last year’s sales climbed 24% and come in above 2017’s 13% growth, 2016’s 14%, and match 2015.
At the bottom end of the income statement, Lululemon is projected to see its adjusted third quarter earnings pop 24% to $0.93 per share. This would come in below last quarter 35% bottom-line expansion. LULU’s adjusted full-year EPS figures are projected to climb 23.4% and 18%, respectively in 2019 and 2020.
Lululemon is a Zacks Rank #3 (Hold) right now, with its consensus earnings estimates almost completely unchanged in the last 90 days. LULU also holds an “A” grade for Growth and “B” for Momentum in our Style Scores system.
Last quarter, LULU shares surged over 12% after it topped our estimates and it climbed 16% following its Q4 2018 release. With this in mind, some investors might want to bet that Lululemon can wow Wall Street once again even with its shares at new highs.
Interested investors should pay close attention to its e-commerce and international growth, as well as any menswear updates because they could help determine if LULU’s wild ride keeps on moving.
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