Lululemon Athletica (NASDAQ:LULU) has caught our attention this morning as it looks like the stock could have some momentum following its just reported Q3 earnings. You know this was really a highly anticipated quarter.
Sure, most quarters are anticipated, but it was widely believed that this quarter could set direction for the stock. This is because all of retail has been under pressure. This is especially true for any name in apparel or shoes, and even more so for those companies that have anything to do with athletics.
We are of course taking a bath in the sector, thanks to competitive pressure and changing consumer patterns. Lululemon is not immune, and it has faced its own set of issues. But with some shocking earnings reports in sports and apparel related names this earnings season, this was a highly anticipated event:
Clearly, something went right, as the stock is rallying 6% at the time of this writing.
The company is reporting that it had a strong sales season, and as such put up some solid results. Should you be bullish? We wouldn’t go that far, given the name is pretty expensive at 30 times trailing earnings.
But there is reason to be positive. The company delivered sales of $619 million. This was an increase of 14% over last year’s results, even when controlling for currency fluctuations. It is also important to point out that these sales beat estimates by a wide margin, surpassing consensus expectations by $9 million.
Of course, we need to know where these sales are coming from.
Perhaps the best gauge for the health of a business in this fickle sector is to examine same store, or comparable, sales. In general, with very few exceptions, when comp sales are negative, we will never recommend the stock. Here we see immense strength.
Comparable same store sales were up 2%. This is a positive. It is also important to realize that the direct to consumer business is shining, with net revenue up 26%, although this included a warehouse sale to move inventory. If we back this out, direct to consumer revenues were still 25% higher.
But the positive same store sales are our big win, because we were looking for flat comparable sales. Great victory here.
This is a big win. Laurent Potdevin, CEO, stated:
“Our teams powerfully delivered robust results across both store and digital channels this quarter, driving a further acceleration in our business. The strength of our Q3 earnings supports our unique position as the global brand defining an active, mindful lifestyle. As we start the holiday season, I’m energized by our momentum and we are increasing guidance to reflect this performance. I’m grateful for the enthusiasm I see every day across our collective as we remain on our path to delivering $4 billion in revenue in 2020.”
A huge positive to see the company still eyeing $4 billion in annual revenue by 2020. When we factor in expenses and the rise in sales, income from operations was $85.6 million, a decrease of 8% compared to last year.
Adjusted income from operations increased by $15 million to $107.8 million. On a per share basis, adjusted earnings were $0.56 per share, versus $0.47 per share last year.
While this growth is minimal, the company was expected to do much worse. These earnings trounced estimates by $0.04.
Beyond the strong performance for this company that was priced for strong growth, the company upped guidance for the year. For 2017, net revenue to should be in the range of $2.59 billion to $2.605 billion based on a total comparable sales increase in the low-single digits.
Diluted earnings per share are expected to be in the range of $2.20 to $2.23 for the full year, while adjusted diluted earnings per share to be in the range of $2.45 to $2.48 for the year. Finally, the company authorized an additional $200 million stock repurchase program.
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