Shares of Lululemon Athletica Inc. (LULU) jumped 6.8% following the company’s encouraging sales and earnings outlook for fourth-quarter fiscal 2014. This Vancouver, Canada-based company benefitted from a robust holiday season and improving trends that helped regain customer confidence.
Lululemon now projects earnings in the range of 71 to 73 cents per share, up from prior guidance of 65 to 69 cents. The current Zacks Consensus Estimate for the quarter is pegged at 68 cents and can witness an uptrend in the coming days following the upbeat earnings forecast.
Management now expects sales between $595 million and $600 million for the quarter, up from its previous forecast of $570 to $585 million. Comparable-store sales are expected to escalate 6%-7% on a constant dollar basis as against a low-single digit percentage growth expected earlier.
The guidance came prior to the analyst meeting to be held this week in Orlando, FL at the ICR XChange Conference.
We believe Lululemon’s turnaround efforts are paying off and the company is regaining its reputation as a leading yoga-inspired athletic apparel retailer, as evident from its better-than-expected earnings performance in the last reported quarter. The company’s third-quarter fiscal 2014 earnings came in at 42 cents per share that surpassed the Zacks Consensus Estimate of 38 cents.
Moreover, the company is likely to attain operating margin leverage in 2016 on the back of its ongoing efforts to enhance the brand and product quality while focusing on global expansion.
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, enhancing its business globally as well as expanding its ivivva model.
However, this Zacks Rank #3 (Hold) company, which competes with The Gap Inc. (GPS), is facing rising competition in the active-wear 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.
Favorably Ranked Stocks to Consider
Better-ranked stocks in the retail industry include Michael Kors Holdings Ltd. (KORS) and Columbia Sportswear Co. (COLM), both carrying a Zacks Rank #2 (Buy).
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