4 Factors Why lululemon (LULU) Stock is a Lucrative Bet Now

lululemon athletica inc. LULU stock has been moving up the charts owing to the smooth execution of its 2020 strategy, focus on e-commerce business and ivivva remodeling. Also, these initiatives have led the company to deliver impressive earnings and sales surprises. Evidently, in third-quarter fiscal 2017, it came up with the third consecutive positive earnings surprise and eighth straight sales beat.

In the past six months, shares of this yoga-inspired athletic apparel company have surged 36.1% comfortably outperforming the Textile-Apparel industry’s gain of 15.7%. Notably, the industry ranks in the top 41% (105 of 256) of all Zacks industries. Further, the stock has a long-term earnings growth rate of 12.9% and a Growth Score of B.

Let’s take a closer view of the factors that have boosted investors’ confidence in this Zacks Rank #2 (Buy) stock.

2020 Strategy Bodes Well

lululemon seems to be on track with its strategy for 2020. Under it, the company aims to double its revenues to about $4 billion and more than double its earnings. To achieve these targets, management had outlined four distinct growth strategies, including product innovation, building store fleet in North America, expanding digital business and international expansion. Furthermore, lululemon remains keen on expanding store base overseas and expects its international business, including e-commerce, to account for nearly 20-25% of the total sales by 2020. Thus, it is well-positioned for persistent growth and improved profitability over the next five years.

Focus on E-commerce

lululemon remains committed toward enhancing the e-commerce retailing channel and investing in the innovation of new product categories, and bringing improvements to its website. These efforts are contributing to the results, as direct-to-consumer (DTC) comparable-store sales (comps) surged 26% in third-quarter fiscal 2017. Notably, comps growth at DTC stemmed from double-digit increases in traffic and transactions alongside solid conversions this year. Moreover, the company anticipates the process improvements to aid double-digit growth for digital business in the fourth quarter, and into 2018 and beyond. It also remains on track to deliver $4 billion in revenues by 2020.

Ivivva Remodeling Looks Promising

lululemon is progressing well with the remodeling of its ivivva business into an online brand as announced in June 2017. Furthermore, the company intends to develop ivivva, its activewear brand, into an e-commerce focused business, with only eight ivivva stores operating across North America. This apart, it revealed plans to close about 40 of the total 55 ivivva stores and convert nearly half of the remaining stores into lululemon branded stores. In fact, this strategy will enable the company to continue offering the brand to its young patrons globally, which in turn is likely to be accretive to productivity, comps and earnings throughout fiscal 2017.

Raised Q4 Guidance

lululemon emerged strong this holiday season driven by accelerating trends across all parts of its businesses. Further, the company anticipates business strength and current trends to sustain throughout 2018 and beyond. Consequently, the company raised its fiscal fourth-quarter guidance. Currently, it envisions net revenues in the range of $905-$915 million compared with $870-$885 million anticipated earlier. Earnings are anticipated in a band of $1.24-$1.26 per share while adjusted earnings per share (excluding effects of restructuring ivivva operations) are expected to lie within the $1.25-$1.27 range. This marks a considerable improvement from the previously projected earnings of $1.18-$1.21 per share and adjusted earnings of $1.19-$1.22 per share. For the fiscal fourth quarter, the Zacks Consensus Estimate is pegged at $1.27.

All said, we believe that lululemon’s afore-mentioned initiatives as well as focus on 2020 strategy should keep its spectacular show on and drive the stock’s performance.

Not Done Yet? Want More of Textile – Apparel Stocks, Check These

Ralph Lauren Corporation RL with a long-term earnings growth rate of 10.2% has pulled off an average positive earnings surprise of 10.4% in the last four quarters. It carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Columbia Sportswear Company COLM has a long-term earnings growth rate of 9.6% and a Zacks Rank #2. Also, the company has delivered an average positive earnings surprise of 16.5% in the last four quarters.

Michael Kors Holdings Limited KORS, a Zacks Rank #2 stock, has a long-term earnings growth rate of 7%. Further, the company’s earnings have surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 32.7%.

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