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lululemon (LULU) Beats Q3 Earnings & Sales Estimates, Ups View

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lululemon athletica inc. LULU reported robust third-quarter fiscal 2021 results, with the top and bottom lines surpassing the Zacks Consensus Estimate as well as improving year over year. Despite industry-wide supply-chain issues, including higher air freight expenses, results were driven by the robust response to the company’s products, particularly the athletic and leisurewear brands as well productivity above the pre-pandemic levels. Also, a solid start to the holiday season contributed to the performance. That said, management remains on track with its Power of Three growth plan.

However, headwinds related to its recently acquired Mirror remain concerning. As a result, it slashed the Mirror revenue guidance to $125 million from the previously mentioned $130 million for fiscal 2021. The company also expects uncertainty from the new COVID-19 variant to affect its performance.

Despite the headwinds related to COVID-19, including supply-chain disruptions, management raised its top and bottom-line guidance for fiscal 2021. We note that shares of this Zacks Rank #3 (Hold) company have gained 19.8% year to date compared with the industry’s 18.1% growth.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Q3 Numbers

lululemon’s adjusted earnings of $1.62 per share in the fiscal third quarter beat the Zacks Consensus Estimate of $1.39 and increased 39.6% year over year from $1.16 reported in the year-ago quarter. It also came ahead of 96 cents reported in third-quarter fiscal 2019.

The Vancouver, Canada-based company’s quarterly revenues advanced 30% year over year to $1,450 million and surpassed the Zacks Consensus Estimate of $1,431 million. On a constant-dollar basis, revenues increased 28%. Compared with the third quarter of fiscal 2019, net revenues improved 58% on a reported basis. On a two-year compounded annual growth rate basis, revenues rose 26%. The top line gained from strength across the majority of regions, with each region posting double-digit sales growth on a two-year CAGR basis.

Comparable sales grew 27% year over year and 26% on a cc basis. Comparable store sales also advanced 32% on a reported and 31% on a cc basis.

Direct-to-consumer sales rose 23% to $586.5 million and were up 21% in constant currency. Direct-to-consumer revenues represented 40.4% of the company’s total revenues compared with 42.8% in third-quarter fiscal 2020. The company’s revenues improved 28% in North America and 40% in international markets on a year-over-year basis. On a two-year CAGR basis, North America and international revenues increased 23% and 42%, respectively.

In the digital channel, revenues increased 21% year over year and 54% on a two-year CAGR basis, driven by its expanded omnichannel capabilities as well as strength in websites and apps. Digital comps were up 21% in the fiscal third quarter. Meanwhile, store revenues rose 38% year over year and 10% on a two-year CAGR basis. This can be attributable to robust year-over-year traffic growth of more than 50%.

Margins

Gross profit advanced 32% year over year to $829.4 million in third-quarter fiscal 2021. The gross margin expanded 110 basis points (bps) year over year to 57.2%. On a two-year basis, the gross margin increased 210 bps, driven by a 230-bps leverage in occupancy, product team costs and depreciation, and 30 bps of favorable foreign exchange, offset by a 50-bps decline in product margin.

SG&A expenses of $545.1 million increased 32.4% year over year and 66% on a two-year basis. SG&A expenses, as a percentage of sales, expanded 80 bps year over year and 170 bps on a two-year basis to 37.6% due to increased investments.

Adjusted income from operations rose 32% year over year to $282.1 million in the fiscal third quarter. Adjusted operating margin of 19.4% expanded 30 bps year over year and 20 bps on a two-year basis.

Store Updates

In the fiscal third quarter, the company opened 18 stores. As of Oct 31, 2021, it operated 552 stores. In fiscal 2021, the company expects to open 50-55 company-operated stores, including 40-45 stores in the international markets.

Financials

lululemon exited the fiscal third quarter with total liquidity of $1.4 billion, which indicates a strong financial position. This included $993.6 million of cash and cash equivalents, and $396.9 million available under its revolving credit facility. Its stockholders’ equity was $2,658.5 million as of Oct 31, 2021.

Inventories were up 22% year over year to $943.9 million at the end of the fiscal third quarter. It repurchased 0.6 million shares for $236.4 million in the quarter, with $509 million remaining under its current share repurchase authorization.

In the first three quarters of fiscal 2021, the company generated an operating cash flow of $658.1 million. It incurred a capital expenditure of $122 million in the fiscal third quarter compared with $66 million in third-quarter fiscal 2020. The capital spending is mainly related to store capital for new locations, relocation and renovations, supply-chain investment, and technology spend to support business growth.

At the end of fourth-quarter fiscal 2021, the company expects inventory levels to increase 20-25% from that reported in fourth-quarter fiscal 2020. For fiscal 2021, it anticipates incurring a capital expenditure of $375-$385 million.

lululemon athletica inc. Price, Consensus and EPS Surprise

lululemon athletica inc. Price, Consensus and EPS Surprise
lululemon athletica inc. Price, Consensus and EPS Surprise

lululemon athletica inc. price-consensus-eps-surprise-chart | lululemon athletica inc. Quote

Outlook

Management expects fourth-quarter fiscal 2021 revenues between $2.125 billion and $2.165 billion, with revenue growth of 23-24% on a two-year CAGR basis. Adjusted earnings are projected to be $3.25-$3.32, with a flat gross margin on a two-year basis. The view includes negative impacts of 450 basis points from airfreight costs due to congestion and capacity constraints. SG&A expenses for the fourth quarter are envisioned to deleverage 200-250 bps on a two-year basis.

For fiscal 2021, the company anticipates revenues of $6.25-$629 billion, up from the earlier mentioned $6.19-$6.26 billion. The current view suggests witnessing a two-year CAGR of 25-26%. The e-commerce business is forecast to see mid-teen growth. The gross margin is likely to expand 100-150 bps, down from the earlier mentioned 150-200 bps due to higher airfreight expenses. However, the gross margin view surpasses the modest annual gross margin expansion target under the Power of Three growth plan. SG&A for fiscal 2021 is expected to leverage 50-100 bps. Adjusted earnings are predicted to be $7.69-$7.76, up from the prior mentioned $7.38-$7.48.

Here’s How Other Stocks Fared

We have highlighted some better-ranked stocks from the broader Consumer Discretionary space, namely Steven Madden SHOO, Gildan Activewear GIL and PVH Corp PVH.

Gildan Activewear currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 85%, on average. Shares of GIL have gained 48.3% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Gildan’s current financial-year sales and earnings per share suggests growth of 4.5% and 24.4%, respectively, from the year-ago period’s reported numbers. The Zacks Consensus Estimate for GIL’s 2021 earnings is pegged at $2.38 per share, which has increased 12.3% in the past 30 days.

Steven Madden presently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 41.9%, on average. Shares of SHOO have rallied 37.4% year to date.

The Zacks Consensus Estimate for Steven Madden’s current financial-year sales and earnings suggests growth of 50% and 170.4% from the year-ago period’s reported numbers, respectively. The Zacks Consensus Estimate for SHOO’s 2021 earnings is pegged at $2.35 per share, which has increased 11.9% in the past 30 days.

PVH Corp, a Zacks Rank #2 stock at present, has a trailing four-quarter earnings surprise of 72.3%, on average. The PVH stock has gained 9.3% year to date.

The Zacks Consensus Estimate for PVH Corp’s current financial-year sales and earnings per share suggests growth of 27.6% and 571.6%, from the year-ago period’s reported figure. However, the Zacks Consensus Estimate for PVH’s 2021 earnings is pegged at $9.29 per share, which has increased 7.3% in the past 30 days.


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