Bull of the Day: Lululemon (LULU)

Lululemon (LULU) has seen its stock price surge over 24% since Christmas as part of the larger market resurgence. Shares of LULU also soared Monday after the yoga apparel firm raised its Q4 revenue and earnings guidance on the back of better-than-expected holiday-quarter comparable store sales. Overall, Lululemon looks strong as it expands into new growth areas and grabs more market share in the growing athleisure industry.

Updated Guidance

Lululemon announced on Monday that it raised its fourth-quarter revenue guidance up from $1.115 billion to $1.125 billion to between $1.140 billion and $1.150 billion. The Vancouver, Canada-headquartered firm based its new guidance on total comparable sales growth in the mid-to-high teens during the period that included the vital holiday shopping period. Lululemon had previously projected comps growth in the high-single to low-double digits.

Along with LULU’s new top-line guidance, the company raised its adjusted quarterly earnings guidance to between $1.72 and $1.74 a share, up from the $1.64 to $1.67 per share range. Investors should note that Lululemon’s earnings guidance “does not include certain discrete tax expenses related to U.S. tax reform” as well as repatriation, which it expects to recognize in Q4. With that said, Lululemon’s guidance also doesn’t include an expected tax benefit.

Price Movement

As we mentioned at the top, shares of LULU have soared over 24% since Christmas, along with giants such as Amazon (AMZN) and Nike (NKE). Despite Lululemon’s recent climb, its shares are still down roughly 4% over the last three months.

Overall, Lululemon stock closed regular trading Tuesday up 1% at $141.13 a share. This marked a roughly 15% downturn from LULU’s 52-week high and sets up a solid buying opportunity for those high on the yoga apparel retailer. We can also see that Lululemon stock has crushed its sportswear peers, Nike, Adidas (ADDYY), and Under Armour (UAA), over the last two years.

Overview  

Moving on, let’s look at Lululemon’s current business and how it plans to expand. Lululemon transformed into an athletic apparel power, which helped LULU turn into a great stock, on the back of its yoga-inspired offerings that helped drive the growth of the massive, mainstream athleisure industry.

Today, the firm competes against historic sportswear firms like Nike, Adidas, and Puma. Plus, Lululemon’s success has inspired Gap (GPS) to roll out its own athleisure brand, Athleta, and its new men’s focused Hill City. The rise of similar brands such as Outdoor Voices also helps show that the growing athleisure market isn’t expected to fade anytime soon.

Growth Opportunities  

Lululemon has expanded its menswear division and rolled out more expensive offerings for both women and men such as shoes, which cost up to $200. The company also sees its outwear division as a comps driver going forward as it tries to compete with the likes of Canada Goose (GOOS), V.F. Corporation’s (VFC) The North Face, and other higher-end brands.

Lululemon also hopes to break into the self-care market where giants such as Walgreens (WBA) have partnered with trendy, subscription-based services in order to boost sales and attract younger customers. On top of all of that, LULU announced last quarter that is has been testing a new loyalty program that charges members $128 a year for free shipping, curated experiences, and more.

Outlook & Earnings Trends

At the moment, our Zacks Consensus Estimate calls for Lululemon’s Q4 revenues to climb 21.8% to reach $1.13 billion. Meanwhile, the company’s full-year revenues are projected to surge 22.7% to touch $3.25 billion.

On the other end of the income statement, Lululemon is projected to see its Q4 earnings pop 27.8% to $1.70 a share. Plus, the athletic apparel company’s full-year earnings are expected to soar 43.2% to reach $3.71 a share. Keep in mind that Lululemon’s Q4 and fiscal 2018 estimates could climb as more analysts update their projections based on the firm’s recently-released holiday quarter guidance.

Maybe more important than Lululemon’s strong bottom-line growth projections, is the fact that the firm has earned a ton of positive earnings estimate revisions for Q4 as well as fiscal 2018 and 2019. We can see that a lot of this activity has occurred within the last seven days. Overall, positive bottom-line revisions are a good sign because earnings growth has been proven to be one of the best long-term indicators of positive stock price movement.

Bottom Line

Lululemon is currently a Zacks Rank #1 (Strong Buy) based, for the most part, on its impressive earnings estimate revision activity. LULU also boasts “A” grades for both Growth and Momentum in our Style Scores system.

The Canadian yoga and athleisure power also doesn’t currently hold any long-term debt. This means Lululemon should theoretically be able to spend money on new products, expansion, e-commerce platform improvements, and more. Lululemon executives also said on the company’s Q3 earnings call that the firm is “on course to achieve and even exceed” its goal of reaching $4 billion in revenue by 2020.

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