Lululemon Athletica Inc. (LULU), a Canada based yoga-inspired athletic apparel company, has once again proved its ability by reporting strong quarterly financial result during the period when others are facing inflationary pressure. Prior to this, the company has witnessed a consistent sales growth and margin expansion throughout its four quarters of fiscal 2010.
Lululemon reported robust first-quarter 2011 adjusted earnings of 44 cents a share, up 63.0% from the year-ago figure of 27 cents, handily beating the Zacks Consensus Estimate of 38 cents. The robust earnings growth was primarily driven by strong top-line growth and improved margins achieved through disciplined management and operational efficiencies.
Financial Details
The company's 16.0% increase in comparable-store sales and 51.0% rise in Direct-to-Consumer revenue aided the 35.0% year-over-year increase in first-quarter 2011 total revenue, which climbed to $186.8 million from $138.3 million reported in the year-ago quarter. Total revenue beats the Zacks Consensus Estimate of $180.0 million.
Gross profit for the quarter came in at $109.7 million and increased 48.0% year over year, reflecting a high double-digit growth in top line. Gross margin improved 490 basis points to 58.7% compared with 53.8% in the prior period, primarily due to reduced cost of goods sold as a percentage of total revenue. Operating income for the quarter was $51.7 million compared with $32.5 million a year ago while operating margin expanded 420 basis points to 27.7%, reflecting operational efficiencies achieved by the company.
Cash and cash equivalents at the end of the quarter was $260.9 million and stockholders' equity came in at $455.9 million. The company is free from long-term debts. Cash flow from operating activities for the reported quarter came in at $5.7 million compared with $12.6 million in the prior-period.
Store Update
In the reported quarter, Lululemon added total nine stores and ended the quarter with 142 total stores.
Second-Quarter and Fiscal 2011 Outlook
Management estimates that existing store upgrades and new store openings have the potential to generate net revenues of $200.0 to $205.0 million for the second quarter of fiscal 2011. Comps are expected to be in the mid-to-upper teens for the said quarter. Based on these expectations, the company expects its earnings for the second quarter of fiscal 2011 to be in the range of 42 to 44 cents per share.
For full fiscal 2011, the company has raised its revenue and earnings guidance. For fiscal 2011, the company now expects its earnings to be in the range of $2.10 to $2.16 per share instead of $1.90 to $2.00 forecasted earlier. Similarly, the company has raised its revenue guidance for fiscal 2011 in the range of $915.0 to $930.0 million from $885.0 to $900.0 million guided earlier.
Our Take
We believe that Lululemon's strategic initiatives coupled with better inventory management and e-commerce business will boost both its top and bottom lines. However, the company faces intense competition from national and regional competitors such as Nike Inc. (NKE) and Under Armour Inc. (UA), which may dent its future performance.
Currently, Lululemon maintains a Zacks #2 Rank, which translates into a short-term 'Buy' rating. Moreover, we retain a long-term 'Outperform' recommendation on the stock.
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