Continuing with its solid top-line performance along with leveraged operating expenses, Lululemon Athletica Inc. (LULU), the leading yoga-inspired athletic apparel and accessories retailer, yet again posted a better-than-expected quarterly result. The company’s recently reported fourth-quarter 2011 earnings of 51 cents per share surged 34.2% from the prior period, handily beating the Zacks Consensus Estimate of 49 cents per share.
Quarter in detail
The company’s 26% increase in comparable-store sales and 103.6% rise in Direct-to-Consumer revenue resulted in 51.4% year-over-year surge in fourth-quarter 2011 total revenue, climbing $371.5 million from $245.4 million reported in the year-ago quarter. Moreover, quarterly revenue also beats the Zacks Consensus Estimate of $360 million.
Gross profit during the quarter increased 45.7% to $209 million from the prior period, reflecting a high double-digit growth in its top line. However, gross margin contracted 220 basis points to 56.3% compared with 58.5% in the prior period, primarily due to increased cost of goods sold as a percentage of total revenue.
Operating income increased 62.8% to $116.1 million compared with $71.3 million a year ago while operating margin expanded 210 basis points to 31.2%, reflecting operational efficiencies achieved by the company.
Fiscal 2011, a synopsis
Fiscal 2011 was a great year for Lululemon, as the company achieved $1 billion sales mark. With its continuous outstanding quarterly performance throughout the fiscal, Lululemon was able to achieve this landmark.
During the fiscal, Lululemon’s total revenue jumped 40.6% to $1000.8 million from the prior-period, beating the Zacks Consensus Estimate of $987 million. The solid top-line performance was primarily driven by an increase of 20% and 85.4% in comparable sales and Direct-to-consumer revenue, respectively. Consequently, the company’s earnings grew approximately 49.4% to $1.27 per share from the previous fiscal, surpassing the Zacks Consensus Estimate of $1.24.
Balance Sheet
Cash and cash equivalents at the end of the fiscal were $409.4 million, an improvement of more than 29.5% from fiscal 2010 level of $316.3 million. Stockholders’ equity came in at $606.2 million. Besides, the company is free from any long-term debts. Cash flow from operating activities for the year came in at $203.6 million compared with $180 million in the previous fiscal.
Management Guidance
Management estimates that existing store upgrades and new store openings have the potential to generate net revenues of $265 to $270 million for the first quarter of fiscal 2012. Comps are expected to be in the low twenties for the reported quarter. Based on these expectations, the company expects its earnings for the first quarter of fiscal 2012 to be in the range of 28 to 29 cents per share. The current Zacks Consensus Estimate stands at 29 cents per share, in line with the company’s higher guidance range.
For fiscal 2012, management expects revenue in the range of $1.3 billion to $1.325 billion. Based on this assumption, the company anticipates earnings in between $1.50 and $1.57 per share for fiscal 2012. Currently, the Zacks Consensus Estimate stands at $1.51 per share, which is at the lower end of the company’s guidance range.
Our Take
We believe that Lululemon’s strategic initiatives coupled with e-commerce business will boost both its top and bottom lines.
Lululemon mainly competes with Nike Inc. (NKE) and Under Armour Inc. (UA). The company has a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating. Currently, we are retaining our long-term ‘Outperform’ recommendation on the stock.
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