Lululemon Athletica Inc. (LULU), a Canada-based yoga-inspired athletic apparel company, recently posted its one of the best financial results in its history with strong fourth-quarter 2010 results.
Street analysts had more than a week to ponder the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank.
Quarterly Review
On March 17, 2011, Lululemon reported robust fourth-quarter 2010 earnings of 64 cents a share, up 60.0% from the year-ago figure of 40 cents and handily beats the Zacks Consensus Estimate of 57 cents. The robust earnings growth was primarily driven by strong top-line growth and improved margins achieved through disciplined management and operational efficiencies.
The company’s 28.0% increase in comparable-store sales and 152.0% rise in Direct-to-Consumer revenue aided the 52.8% year-over-year increase in fourth-quarter 2010 total revenue, which climbed to $245.4 million from $160.6 million reported in the year-ago quarter. Total revenue beat the Zacks Consensus Estimate of $239.0 million.
Management Guidance for First-Quarter and Fiscal 2011
Management estimates that existing store upgrades and new store openings have the potential to generate net revenues of $175.0 to $180.0 million for the first quarter of fiscal 2011. Comps are expected to be in the low double-digit for the said quarter. For full fiscal 2011, revenue is expected to be in between $885.0 million and $900.0 million.
The company expects its earnings for the first quarter of fiscal 2011 to be in the range of 36 cents to 38 cents per share, while for fiscal 2011 it will be between $1.90 and $2.00 per share.
(Read our full coverage on this earnings report: Lululemon Surprises Estimates)
Agreement of Analysts
Estimate revision trends for the upcoming first and second quarter of fiscal 2011 portrayed positive sentiments among most of the analysts covering the stock. Over the last 30 days, 11 out of 18 analysts following the stock revisited their estimates, of which 9 analysts upgraded and 2 analysts downgraded their estimates for the first quarter of 2011.
Moreover, for second-quarter 2011, 6 analysts revisited their estimates, of which 5 analysts upgraded and 1 analyst downgraded their estimates in the last 30 days. Similarly in the last 30 days, 15 and 9 analysts revisited their estimates for full fiscal 2011 and 2012 respectively, and all have upgraded their estimates.
However, estimate revision trends for the upcoming first and second quarter of fiscal 2011 remains unchanged as none of the analysts covering the stock have changed their estimates in the last 7 days. Similarly, for full fiscal 2011 and 2012 none of the analysts covering the stock have changed their estimates in the last 7 days.
Magnitude of Estimate Revisions
The magnitude of estimate revisions for Lululemon depicts an optimistic analyst outlook for first and second quarters of 2011 and fiscal 2011 and 2012. Over the last 30 days, estimates for first and second quarters of fiscal 2011 have been increased by 2 cents each to 38 cents and 39 cents per share respectively.
While for fiscal years 2011 and 2012, estimates have been increased by 19 cents to $2.04 per share and 26 cents to $2.51 per share respectively.
However, over the last 7 days, estimates for first and second quarters of fiscal 2011 and for full fiscal 2011 and 2012 remains unchanged.
Our Recommendation
Canada-based Lululemon is a designer, manufacturer and distributor of athletic apparel and accessories for women, men and youth women in Canada, North America and Australia.It is geared toward expanding operating results and creating shareholder value.
We believe that Lululemon’s strategic initiatives coupled with better inventory management and e-commerce business will enhance both the top and bottom-lines. Lululemon’s e-commerce channel contributed approximately 8% of net revenue in fiscal 2010 compared with 4% in fiscal 2009.
Moreover, the company offers an extensive selection of quality merchandise and is designed to appeal to a wide range of customers within each individual market. This provides a significant upside potential to the company.
However, Lululemon’s business is heavily dependent on commodities such as synthetic fabrics, cotton and other. The performance of the company may be adversely affected due to volatility in the prices of these commodities, as the prices of these commodities are based on market condition and governmental regulations.
Lululemon, which competes with Nike Inc. (NKE) and Under Armour Inc. (UA), currently, holds a Zacks #1 Rank, implying a short-term Strong Buy rating on the stock.
LULULEMON ATHLT (LULU): Free Stock Analysis Report
NIKE INC-B (NKE): Free Stock Analysis Report
UNDER ARMOUR-A (UA): Free Stock Analysis Report
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