Lululemon Up 9.7% Post Q3 Earnings: Will This Trend Continue?

Since Lululemon Athletica Inc. LULU released third-quarter fiscal 2017 results, the stock has been gaining ground. Also, increased optimism among analysts is reflected by the rise in the Zacks Consensus Estimate.

Shares of the company have surged 9.7% since it reported quarterly numbers on Dec 6. In the last six months, the stock has rallied 39.6%, outperforming the industry

’s gain of 13.2%. Additionally, a  Momentum Score of A and long-term earnings growth rate of 12.4%, highlight Lululemon’s inherent prospects.

The optimistic view of analysts along with the stock’s solid run on the bourses makes this Zacks Rank #2 (Buy) company a favorable pick for investors now.

Robust Outlook & Positive Estimate Revisions

Lululemon has witnessed an improvement in store traffic in both the United States and Canada through the first five weeks of the fourth quarter backed by incredible enthusiasm for the holiday season. Consequently, it now envisions normalized earnings (excluding the impact from ivivva’s restructuring) for the quarter to lie in the band of $1.19-$1.22 per share.

Further, normalized earnings for fiscal 2017 are projected in the range of $2.45-$2.48 per share, up from the previous range of $2.35-$2.42. This follows the robust third-quarter performance, which marked the company’s third straight positive earnings surprise with eighth consecutive sales beat.

For the fiscal fourth quarter, the Zacks Consensus Estimate of $1.22 per share moved up by 4 cents in the last 30 days. The same for fiscal 2017 and fiscal 2018 has increased to $2.50 and $2.84, respectively, from $2.43 and $2.72, over the said time frame.

Results in the quarter gained from consumers’ favorable response to Lululemon’s product innovations, solid direct-to-consumer sales, focus on supply chain initiatives and the company’s commitment toward its long-term strategy. (Read more: Lululemon Jumps on Q3 Earnings & Sales Beat, Ups View)

Ivivva Business Remodeling Bodes Well

Lululemon remains on track with the remodeling of its ivivva business into an online brand as announced in June. In this regard, management had announced plans to develop ivivva — its activewear brand — into an e-commerce focused business with only eight ivivva stores operating across North America. This, in turn, might allow the company to continue offering the brand to its young patrons, globally. Going forward, Lululemon anticipates the strategy to be accretive to productivity, comps and earnings throughout fiscal 2017.

Other Growth Catalysts

Lululemon is progressing well with efforts to build upon its supply chain network and e-commerce business. With regard to e-commerce, the company is progressing with further developing the processes put in place in the first and second quarters including improved photography, more spontaneous merchandising and disciplined planning. These efforts helped the company receive favorable response from shoppers, without having to proceed with the previously planned launch of a new website. Moreover, the company anticipates these process improvements to aid double-digit growth for digital business in the fourth quarter, and into 2018 and beyond.

Meanwhile, Lululemon’s 2020 strategy seems to bode well, through which 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. Thus, the company believes it is well-positioned for persistent growth and improved profitability over the next five years.

Three More Stocks That Witnessed Positive Estimate Revisions Lately

The fourth quarter and fiscal 2017 consensus mark for American Eagle Outfitters, Inc. AEO has moved up by 5 cents and 3 cents, respectively, to 44 cents per share and $1.16 per share in the last 30 days. This specialty retailer of casual apparel, accessories and footwear carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dollar Tree, Inc. DLTR has seen the Zacks Consensus Estimate for the fourth quarter and fiscal 2017 increase from $1.80 to $1.86 and $4.66 to $4.82, respectively, in the past 30 days. This discount store retailer carries a Zacks Rank #2.

PVH Corp.’s PVH earnings estimates for fiscal 2017 have increased by 6 cents to $7.79, in the last 30 days. The designer and marketer of branded dress shirts, sportswear, footwear and other related products holds a Zacks Rank #2.

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