Lululemon Athletica Inc. (LULU) reported second-quarter 2011 earnings of 26 cents a share, up 73.0% from the year-ago figure of 15 cents, handily beating the Zacks Consensus Estimate of 22 cents.
Financial Details
The company’s 20.0% increase in comparable-store sales and 93.0% rise in Direct-to-Consumer revenue aided 39.0% year-over-year increase in second-quarter 2011 total revenue, which climbed to $212.3 million from $152.2 million reported in the year-ago quarter.
Gross profit for the quarter came in at $122.1 million and increased 52.0% year over year, reflecting a high double-digit growth in top line. Gross margin improved 470 basis points to 57.5% compared with 52.8% in the prior period, primarily due to reduced cost of goods sold as a percentage of total revenue.
Operating income for the quarter was $59.5 million compared with $34.2 million a year ago while operating margin expanded 550 basis points to 28%, reflecting operational efficiencies achieved by the company.
Cash and cash equivalents at the end of the quarter was $264.7 million and stockholders’ equity came in at $499.7 million. The company is free from long-term debts. Cash flow from operating activities for the year-to-date period came in at $19.5 million compared with $34.6 million in the prior period.
Store Update
Lululemon ended the quarter with 151 total stores.
Third-Quarter and Fiscal 2011 Outlook
Management estimates that existing store upgrades and new store openings have the potential to generate net revenues of $225.0 to $230.0 million for the third quarter of fiscal 2011. Comps are expected to be in the low-to-mid teens for the reported quarter. Based on these expectations, the company expects its earnings for the third quarter of fiscal 2011 to be in the range of 22 to 24 cents per share.
For fiscal 2011, the company expects its earnings to be in the range of $1.10 to $1.14 per share. The company expects revenue guidance for fiscal 2011 in the range of $930.0 to $950.0 million.
Our Take
We believe that Lululemon’s strategic initiatives coupled with better inventory management and e-commerce business will boost both its top and bottom lines. However, the company faces intense competition from national and regional competitors, such as Nike Inc. (NKE) and Under Armour Inc. (UA), which may dent its future performance.
Currently, Lululemon maintains a Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, we retain a long-term Neutral recommendation on the stock.
