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Lululemon (LULU) Revises Q4 View on Robust Holiday Show

Zacks Equity Research

Unlike other retailers, yoga-inspired athletic apparel company Lululemon Athletica Inc. LULU emerged strong this holiday season. Consequently, the company pulled up the lower-end of its previously issued revenue and earnings outlook for the fourth quarter of fiscal 2016, ahead of its upcoming ICR conference.  

Lululemon revealed that it witnessed a superb holiday season, thanks to solid performance across both stores and online. The superb show can be attributed to the company’s impressive operational execution, enhanced customer experience and robust assortments. Further, Lululemon remains hopeful of driving this momentum forward, which encouraged management to revise its fourth-quarter outlook.

Evidently, the company now expects net revenues in the range of $775–$785 million, compared with $765–$785 million anticipated earlier. However, the company continues to project total comparable stores sales (comps) to grow in mid-single digits, on a constant dollar basis.

As a result, Lululemon now envisions earnings for the quarter to lie in a band of 99 cents to $1.01 per share, up from 96 cents to $1.01 per share forecasted earlier. The Zacks Consensus Estimate for the current quarter is pegged at $1.00 per share.

While this holiday season was a boon for Lululemon, the period remained quitechallengingin general.Retailers continued to feel the pinch of declining customer traffic at stores and malls as online stores hogged the limelight. Retailers like Kohl's Corporation KSS and Macy’s, Inc. M fell prey to these industry hurdles, owing to which holiday comps for both declined 2.1%. Unlike Lululemon, the drab holiday sales compelled these bellwethers to slash their earnings outlook for fiscal 2016.

American Eagle Outfitters Inc. AEO also posted its holiday numbers last week, wherein comps remained flat year over year, leading to a reiteratedfourth-quarter fiscal 2016 earnings guidance.

Coming back to Lululemon, the aforementioned news didn’t have much impact on its stock price, as investor sentiment was overshadowed by the general softness across the retail space this holiday season.Nonetheless, Lululemon’s shares have outperformed the Zacks categorized Textile – Apparel Manufacturing industry over the past one year, with growth of 24.6%, compared with a 5.3% drop for the latter. We believe that this solid stock momentum is attributable tothe company’s strategic growth initiatives and solidsales history.

The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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