lululemon athletica inc. LULU delivered solid first-quarter fiscal 2018 with both sales and earnings surpassing estimates and improving year over year. While this marked its fifth consecutive earnings beat. The company’s sales topped estimates for the 10th straight quarter.
The strong quarter was mainly driven by synergies from product innovation, international expansion and digital acceleration, which collectively reflect strength of the company’s business. Additionally, results gained from improvement in product margins and cost efficiencies within the company’s supply chain.
In fiscal 2018, lululemon is likely to witness strong momentum across its business while executing growth strategies. Driven by these, the company remains on track to deliver revenues of $4 billion for fiscal 2020.
Notably, this Zacks Rank #2 (Buy) has surged 28% in the last three months, surpassing the industry’s 12.2% growth.
Q1 Numbers
lululemon posted earnings of 55 cents per share, beating the Zacks Consensus Estimate of 46 cents and rising 71.9% from adjusted earnings per share of 32 cents in the year-ago quarter. Including effects of ivivva’s restructuring, earnings were 23 cents in the first quarter of fiscal 2017.
lululemon athletica inc. Price, Consensus and EPS Surprise
lululemon athletica inc. Price, Consensus and EPS Surprise | lululemon athletica inc. Quote
The Vancouver, Canada-based company’s quarterly revenues advanced about 25% to $649.7 million and surpassed the Zacks Consensus Estimate of $618 million. On a constant-dollar basis, revenues increased 23%. The improvement can be attributed to strong performance across all parts of the business. Further, foreign-currency tailwinds bolstered revenues by $9 million in the reported quarter.
Total comparable store sales (comps), including in-store comps and direct-to-consumer sales, grew 20% while constant-dollar comps were up 19%. In-store comps improved 8% (up 6% on constant-dollars basis) while DTC comps surged 62% (an increase of 60% in constant dollars).
Margins
Gross profit rose 31% to $344.7 million in first-quarter fiscal 2018. Moreover, gross margin expanded 270 basis points (bps) to 53.1%, exceeding the company’s expectations. The gross margin was fueled by 120 bps improvement in product margins, backed by favorable product mix, reduced product costs and lower markdowns.
Further, the reported quarter was marked by a 30 bps gain from foreign currency, and 120 bps leverage on occupancy and depreciation as well as product and supply chain SG&A. The company expects to gain from further cost efficiencies within its supply chain, driven by ongoing strategies across sourcing and distribution.
Operating income increased nearly 65% to $104.3 million while the operating margin expanded 400 bps to 16.1%.
Store Updates
During the quarter under review, the company opened seven new stores. As of Apr 29, 2018, the company operated total 411 stores.
For fiscal 2018, it targets opening 40-50 company-operated stores, including 20-30 stores in international locations. The company expects to open three new stores in the fiscal second quarter.
Financials
lululemon exited the reported quarter with cash and cash equivalents of $966.6 million and stockholders' equity of $1,636.2 million. Inventories were up 23% at $373.4 million.
As of Apr 29, 2018, lululemon generated $35.8 million as cash flow from operating activities. Further, it spent $34 million toward capital expenditure in first-quarter fiscal 2018, mainly related to store renovations and relocations.
Q2 Forecasts
For second-quarter fiscal 2018, lululemon anticipates revenues of $660-$665 million, with constant dollar comps expected to increase in the high-single-digit range. The company projects gross margin to improve 50 bps compared with the year-ago quarter, backed by ongoing supply-chain initiatives. Management anticipates SG&A expense leverage of about 50 bps, driven by efficiencies in its cost structure.
lululemon envisions earnings for the second quarter to be 46-48 cents per share. Effective tax rate is expected to be nearly 30%.
FY18 View
Following the solid start to the fiscal, lululemon updated its outlook for fiscal 2018. The company now projects revenues of $3.04-$3.075 billion compared with $2.985-$3.22 billion projected earlier. The guidance is based on comps growth of high-single digit, on a constant-dollar basis, versus the prior forecast of mid- to high-single-digit comps growth. Its sales and earnings for fiscal 2018 will include a modest benefit from the 53rd week.
The company continues to expect modest gross-margin expansion in fiscal 2018, driven by anticipated gains in product margins and leverage on occupancy and other fixed costs. The company anticipates SG&A expense to leverage modestly, due to efficiencies within its cost structure.
Earnings for the fiscal are now projected to be $3.10-$3.18 per share against the previous guidance of $3-$3.08. The effective tax rate is expected to be 30% in fiscal 2018, slightly higher than the prior forecast of 29%. Tax gains result from the refinements under the new tax reform.
Capital expenditures for fiscal 2018 are estimated to be $240-$250 million, including the ramp-up of renovation and relocation programs, increased store opening in international markets and investments in general infrastructure projects.
Looking for Some Other Trending Picks? Look at These
Some other top-ranked stocks in the same industry are Columbia Sportswear Company COLM, Guess?, Inc. GES and Tailored Brands Inc. TLRD. While Columbia Sportswear sports a Zacks Rank #1 (Strong Buy), Guess? and Tailored Brands carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Columbia Sportswear has pulled off an average positive earnings surprise of 18.1% in the last four quarters. The company has long-term earnings growth rate of 11.1%.
Guess?, with an impressive earnings growth rate of 17.5%, has delivered an average positive earnings surprise of 29% in the trailing four quarters.
Tailored Brands has long-term earnings growth rate of 16%. Further, the company’s earnings have outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 50.9%.
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