Yoga-inspired athletic apparel retailer, Lululemon Athletica Inc. LULU is regaining strength driven by solid earnings and sales trends in recent quarters along with efforts to improve e-commerce business. Further, the recently announced ivivva remodeling and its strategy for 2020 bode well.
The cumulative effect of this is visible in the company’s stock performance. Notably, the stock has gained 13.7% in the last three months, outperforming the industry’s growth of 7.7%. Additionally, the stock has improved 3.8% since reporting robust second-quarter fiscal 2017 results on Aug 31.
Moreover, this Zacks Rank #3 (Hold) stock is supported by a long-term earnings growth rate of 11.9% and Growth Score of A, which justifies growth potential. That said, let’s find out the reasons behind the upsurge.
Robust Earnings Trend Aid Performance
Despite a tough retail landscape, Lululemon topped both sales and earnings estimates in the fiscal second quarter. While the bottom line marked its second consecutive beat, the top line recorded positive surprise for the seventh straight quarter. Results were driven by consumers’ favorable response to the company’s product innovations, solid direct-to-consumer (DTC) sales, focus on supply chain initiatives and its commitment to long-term strategy.
lululemon athletica inc. Price, Consensus and EPS Surprise
lululemon athletica inc. Price, Consensus and EPS Surprise | lululemon athletica inc. Quote
E-commerce & Supply Chain Initiatives
Lululemon remains on track with efforts to build upon its supply chain network and e-commerce business. Incidentally, the company’s supply chain initiatives have aided product margins over the past year. With regard to e-commerce, the company expects to update its website with advanced features in the third quarter. This is likely to boost Lululemon’s holiday period performance.
Ivivva Remodeling on Track
The company is on track with the remodeling of its ivivva business into an online brand, as announced in June. As part of the plan, Lululemon is likely to develop ivivva, its activewear brand, into an e-commerce focused business, with only eight iviva stores operating across North America. The company plans to close about 40 of the total 55 iviva stores and convert nearly half of the remaining stores into lululemon branded stores. The company is also on track to shut down 16 iviva showrooms and other temporary stores, in order to streamline corporate infrastructure. These closures are anticipated to be concluded by the end of third-quarter fiscal 2017.
Progress on 2020 Strategy Impressive
Lululemon is well on track with its strategy for 2020, by which the company aims to double revenues to about $4 billion and more than double earnings. To achieve this, the company is committed toward product innovation, building store fleet in North America, expanding digital business and global expansion. With more customers turning to online portals, the company anticipates this channel to account for over one-third of its sales by 2020. With regard to international expansion, the company remains keen on expanding store base overseas and expects its international business, including e-commerce, to account for nearly 20-25% of the total sales by 2020. Consequently, the company believes it is well-positioned for persistent growth and improved profitability over the next five years.
Solid Outlook Drives Estimates Up
The solid second quarter and favorable third quarter trends make management confident of generating revenues of $4 billion by 2020. This encouraged management to initiate a robust third quarter view and raise fiscal 2017 outlook. For third-quarter fiscal 2017, Lululemon anticipates revenues in the range of $605-$615 million. Earnings for the quarter are projected in a band of 50-52 cents per share. For fiscal 2017, it now projects sales to range from $2.545-$2.595 billion, up from the previous forecast of $2.53–$2.58 billion. Normalized earnings are now envisioned in a band of $2.35-$2.42 per share, up from the previous range of $2.28-$2.38.
Consequently, the Zacks Consensus Estimate for fiscal 2017 and 2018 witnessed an uptrend in the last 30 days. Estimate for fiscal 2017 increased nearly 3% to $2.41 per share and for fiscal 2018 it rose 1.1% to $2.70 per share.
Looking for Some Trending Picks? Look at These
Better-ranked stocks in the same industry include Crocs, Inc. CROX, Guess?, Inc. GES and Gildan Activewear, Inc. GIL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Crocs has a long-term EPS growth rate of 15%. Further, the stock has returned 25.1% in the last three months.
Guess? has grown 30.3% year to date. Moreover, it has a long-term earnings growth rate of 17.5%.
Gildan Activewear has improved 21.2% year to date. Further, the company has a long-term EPS growth rate of 13.5%.
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