Lululemon Athletica Inc. (LULU), one of the leading yoga-inspired athletic apparel and accessories retailer, has created a distinct niche for itself in the market by offering superior product designs at a premium price. Moreover, the company’s investment in e-Commerce in order to shift from traditional sales channels and its efforts to diversify geographically positions it well.
Driven by robust online sales, the company posted solid earnings results for third-quarter fiscal 2014. Results also benefited from its ongoing strategies adopted for product and brand enhancement as well as global expansion.
Earnings of $0.42 per share cruised ahead of the Zacks Consensus Estimate of $0.38 as well as the company’s forecast of $0.36–$0.38 per share. Additionally, the company raised its adjusted earnings guidance for fiscal 2014 to lie in a band of $1.74–$1.78 per share, compared to $1.72–$1.77 per share, projected earlier.
Moreover, this Zacks Rank #3 (Hold) company has surpassed the Zacks Consensus Estimate for 26 consecutive quarters. Going forward, we expect Lululemon to keep up this trend of posting positive earnings surprises as it continues to focus on boosting productivity at existing stores, developing its e-Commerce retail platform and enhancing its domestic and international presence.
Further, the company has an edge over its competitors on grounds of innovation as its superior pricing allows it to experiment with fabric and designs.
Our confidence on the company is based on its unmatched long-term growth opportunity in the industry owing to its potential of widening square footage and enhancing its business globally as well as expanding its ivivva model.
However, we remain slightly cautious as the company lowered its sales projections for fiscal 2014 to a range of $1.77–$1.78 billion compared with $1.78–$1.80 billion projected earlier, on the back of low single-digit comps growth. Management expects fourth-quarter sales to be effected by continued unrest at the West Coast ports, weaker Canadian and Australian dollar and delay in store opening plan.
Moreover, the company, which competes with The Gap Inc. (GPS), is facing rising competition in the activewear product line as large sporting goods apparel retailers are attempting to capture market share in the female yoga, running, dancing and stylish casual compression pant product lines. Furthermore, the prevalent soft macroeconomic environment and volatile raw material prices remain concerns.
Other Stocks to Consider
Other stocks performing well in the retail apparel space are Crocs, Inc. (CROX) and G-III Apparel Group, Ltd. (GIII), each sporting a Zacks Rank #1 (Strong Buy).
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