It has been about a month since the last earnings report for Lululemon (LULU). Shares have added about 2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lululemon due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
lululemon Q1 Earnings & Sales Miss
lululemon reported lower-than-expected top and bottom lines in first-quarter fiscal 2020. Moreover, earnings and revenues declined year over year. Results were primarily marred by extended store closures due to the COVID-19 outbreak, offset by solid e-commerce performance. Management did not issue any guidance for fiscal 2020 due to the unprecedented impact of the coronavirus outbreak.
lululemon’s earnings of 22 cents per share in the fiscal first quarter lagged the Zacks Consensus Estimate of 26 cents and declined 70% from earnings of 74 cents in the year-ago quarter. The bottom line was hurt by a decline in the top line as well as gross and operating margins.
The Vancouver, Canada-based company’s quarterly revenues declined about 17% to $652 million and missed the Zacks Consensus Estimate of $711 million. On a constant-dollar basis, revenues fell 16%. The sharp decline in revenues is attributed to the closure of a large number of stores globally due to the coronavirus outbreak. Owing to the store closures, the company also did not provide same-store sales.
Meanwhile, its e-commerce business continued to perform well, as consumers shifted to the online portals for their purchases amid the pandemic. The company’s e-commerce (direct-to-consumer) revenues increased 68% on a reported basis and 70% in constant dollars. This marked a significant improvement from constant-dollar growth of 35% in the year-ago quarter and 41% in fourth-quarter fiscal 2019. Notably, e-commerce revenues contributed about $352 million or 54% of total sales in the fiscal first quarter, whereas its contribution was 26.8% in the year-ago quarter.
Gross profit declined 21% to $334.4 million in first-quarter fiscal 2020. Moreover, gross margin contracted 260 basis points (bps) to 51.3% as higher occupancy and other non-product costs marred the improvement in the product margin.
SG&A expenses rose 3% to $301.7 million. Moreover, SG&A expenses, as a percentage of sales, expanded 890 bps to 46.3%.
Driven by soft gross margin and higher SG&A expenses, operating income declined 74.5% to $32.8 million. Operating margin contracted to 5% compared with 16.5% in the prior-year quarter.
During the fiscal first quarter, the company opened four stores, two in Mainland China, one in South Korea and one in Hong Kong. Apart from the temporary closures due to the COVID-19 outbreak, it closed six stores in the fiscal first quarter. It also completed three planned optimizations. As of May 3, 2020, it operated 489 stores.
lululemon exited the fiscal first quarter with cash and cash equivalents of $823 million and stockholders' equity of $1,835.8 million. Moreover, it had $398.2 million available under its revolving credit facility. Inventories were up 41% to $625.8 million.
During the fiscal first quarter, the company bought back 0.4 million shares at an average price of $172.68 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -22.52% due to these changes.
At this time, Lululemon has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, Lululemon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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