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Why Lululemon (LULU) is Rising Even a Month After Earnings

Zacks Equity Research

Yoga-inspired athletic apparel company, Lululemon Athletica Inc. LULU seems to be on track to recover its lost luster. This is evident from the company’s shares which continue to surge even a month after its robust third-quarter fiscal 2016 results on Dec 7, 2016. Further, the solid holiday season sales reported last week provided the necessary thrust for this Zacks Rank #2 (Buy) stock.

Notably, the company’s stock has jumped 13.5% since its earnings release on Dec 7, 2016, and 21.9% in the last one year. On comparison with the Zacks categorized Textile-Apparel Manufacturing industry, we see the stock has significantly outperformed the industry’s decline of 8.8% since Dec 7, 2016, and a fall of 4.9% in the past one year.

What’s Behind the Surge?

We believe Lululemon’s impressive performance history and growth drivers have helped in the outperformance of its shares. The company recently raised the lower end of its fourth-quarter fiscal 2016 earnings and sales view, backed by a solid holiday season. While most retailers struggled, Lululemon emerged strong, driven by solid performance across both stores and online. The superb show can be attributed to its impressive operational execution, enhanced customer experience and robust assortments.

The company now expects net revenues in the range of $775–$785 million, compared with $765–$785 million anticipated earlier. While comparable stores sales (comps) are still expected to grow in mid-single digits, on a constant dollar basis. Lululemon envisions earnings for the quarter to lie in a band of $0.99 to $1.01 per share, up from $0.96 to $1.01 per share forecasted earlier. (Read more: Lululemon Revises Q4 View on Robust Holiday Show)

Consequently, the Zacks Consensus Estimate of $1.01 for the fourth quarter of fiscal 2016 inched up by 1 cent in the last seven days.

Apart from this, Lululemon reported robust results for the fiscal third quarter, wherein both sales and earnings surged year over year and outpaced estimates. We observed that the company’s top-line has outperformed the Zacks Consensus Estimate in six out of seven trailing quarters. (Read more: Lululemon Tops Q3 Earnings, Ups View; Stock Gains)

lululemon athletica inc. Price, Consensus and EPS Surprise


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

Further, the company’s 2020 strategy, aimed at doubling its revenues to about $4 billion and more than double its earnings, has been a constant growth driver. In line with these plans, management has outlined four distinct growth strategies, including product innovation, building store fleet in North America, strengthening digital business and international expansion.

Moreover, the company remains keen on expanding store base overseas and anticipates its international business, including eCommerce, to account for nearly 20–25% of the total sales by 2020. We believe that there remains room to expand across the U.S. and in the underpenetrated European and Asian markets as well. Thus, it is well positioned for continuous growth and improved profitability, going forward.

However, the fading popularity of athleisure wear is likely to take a toll on the company’s performance as denims are back in vogue. Stiff competition from leading brands like NIKE Inc. NKE, currency woes and macroeconomic challenges also remain constant threats for the company.

Other Stocks that Warrant a Look

Other favorably-ranked stocks in the same industry include Tailored Brands Inc. TLRD and Perry Ellis International Inc. PERY, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tailored Brands, with a long-term earnings growth rate of 17.5%, has surged nearly 55.8% in the past one year.

Perry Ellis has jumped nearly 40.6% in the past one year. The stock has seen positive estimate revisions in the past 60 days. The company also flaunts a solid earnings surprise history with an average beat of 19.5% in the trailing four quarters.

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