Shares of Lululemon LULU soared as high as 8% in morning trading Monday after the yoga apparel powerhouse raised its Q4 earnings and revenue guidance. Lululemon’s announcement came after Macy’s M and Kohl’s KSS failed to impress investors with their holiday sales last week. So, let’s see why Lululemon looks like a buy as it expands its market share alongside giants like Nike NKE and Adidas ADDYY.
Updated Q4 Guidance
Lululemon said Monday before management meets with analysts and investors at the ICR Conference in Orlando that it raised its fiscal fourth-quarter revenue guidance to between $1.140 billion and $1.150 billion, up from $1.115 billion to $1.125 billion.
The Vancouver, Canada-based firm upped its guidance based on total comparable sales growth in the mid-to-high teens during the quarter that included the vital holiday shopping period. Lululemon had previously projected comps growth in the high-single to low-double digits.
Meanwhile, the athleisure giant lifted its adjusted quarterly earnings guidance from between $1.64 and $1.67 per share to a range of $1.72 to $1.74 a share. “The momentum in our business remained strong throughout the holiday season, reflecting the ongoing success of our product offerings and our connection with guests around the globe,” CEO Calvin McDonald said.
Lululemon stock popped the most in more than four months in morning trading on the back of the announcement. Shares climbed to as high as $145 Monday and hovered up around 6% at $140.13 a share through early afternoon trading. Investors should note that shares of LULU still rest roughly 15% below their 52-week high of $164.79, which sets up a solid buying opportunity for those high on the expanding athleisure firm.
Outlook & Earnings Trends
Our Zacks Consensus Estimate had called for Lulu’s Q4 revenues to jump 21.5% to $1.13 billion. The company’s full-year revenues are projected to surge 22.6% to touch $3.25 billion.
At the bottom end of the income statement, Lululemon is projected to see its Q4 earnings soar 27.8% to $1.70 a share. Plus, the athletic apparel company’s full-year earnings are expected to surge 42.9% to reach $3.70 a share. With that said, investors should remember that our estimates will likely climb as analysts update their projections based on the firm’s newly released guidance.
We should also note that even before LULU raised its quarterly guidance that the firm had earned a ton of positive earnings estimate revisions over the last 60 days. These revisions mean that at least some analysts expect Lululemon’s earnings to expand even more than they did as recently as seven days ago.
Lululemon is currently a Zacks Rank #2 (Buy) based, in large part, on its recent earnings estimate revision activity. The company also boasts “A” grades for both Growth and Momentum in our Style Scores system.
Lululemon has also been able to expand its consumer base as part of the growing athleisure market, which isn’t expected to fade anytime soon. The company’s success in the quickly growing yoga-based apparel market has forced the likes of Nike and Adidas to adapt, while Under Armour UAA has struggled to roll out crowd-pleasing athleisure wear.
More specifically, the firm sees its newer outwear division as a comps driver across both its men's and women's segments. Lululemon currently sells men’s and women’s parkas for as much as $600 as it tries to compete against Canada Goose GOOS, V.F. Corporation’s VFC The North Face, and other high-end brands. Lulu is also testing out a new loyalty program as retailers from Nordstrom JWN to Target TGT try to navigate an Amazon AMZN-obsessed retail age.
Furthermore, Lululemon also hopes to break into the self-care market where giants such as Walgreens WBA have partnered with trendy, subscription-based services in order to boost sales and attract new customers. Maybe more importantly, Lululemon is actively expanding its presence in key Asian regions. And we should remember that Lululemon executives have reaffirmed their lofty 2020-goals, which include reaching $1 billion in menswear sales.
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