Lululemon Athletica (LULU) continued to wow customers with its high-quality yoga and workout clothes in the third quarter, with shares surging Thursday despite the trendy retailer's mixed guidance.
Lululemon said earnings rose 44% to 39 cents a share, beating views by 2 cents. Sales grew 37% to $316.5 million, ahead of forecasts for $305.3 million. Both were bigger gains than in the prior quarter.
"The company continues to thwart competition and is doing so by maintaining its premium-brand positioning," said Brian Sozzi, chief equities analyst at NBG Productions.
The Canadian-based retailer's gross margin improved substantially relative to Q2, he added, which shows it's not taking any unplanned markdowns.
But the upscale retailer forecast same-store sales growth will decelerate in Q4 to the high-single digits from Q3's 18%.
Shares initially sold off on that outlook, but after meditating for a time, investors took a more positive view. The stock rose 7.3% to 73.57, closing at the session high and the best level since Nov. 18.
Lululemon's online business surged 89% to $45.1 million, or 14.3% of total revenue.
"The bulls wanted confirmation that the company's same-store sales and earnings could re-accelerate in 2013, and this quarter went a long way to show that could happen," said Sozzi.
Not So Fast
While Lululemon has been on a roll since 2008, its growth had generally slowed in recent quarters as new athletic apparel rivals hit the market like Gap's (GPS) Athleta chain. Nike (NKE) and Under Armour (UA) are also tailoring their lines to appeal to women.
Sozzi says Lululemon's slowdown is a function of gross margins slowing amid higher cotton costs last year, aggressive store openings and upgrading its website.
Nike, which also has seen slowing growth, should report quarterly results later this month.
Lululemon is part of the IBD 50 list, which includes the 50 best stocks based on fundamental and technical factors.
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