Yahoo Finance Why Lululemon’s Stock Price Rose Strongly in 2015
Earnings Preview: Lululemon Athletica’s 1Q16 Results
Stock price movements for LULU and its peers
Lululemon Athletica’s (LULU) stock is up 14.3% year-to-date. In comparison, the Consumer Discretionary Select Sector SPDR Fund (XLY) and the iShares Russell 1000 Growth ETF (IWF) are up by 6.4% and 5.3%, respectively. The S&P 500 Index (SPY) is up by 2.5%. Nike (NKE) and Under Armour (UA), which reached all-time highs recently, are up by 6.7% and 20.5% over the same period, respectively.
The vertically integrated apparel retailer (XRT) (RTH) and its peers Nike (NKE), Under Armour (UA), and L Brands (LB), among others, are benefiting from the athleisurewear craze around the world—and particularly in the US. Lululemon derives ~70% of its revenue from US sales.
US activewear market
Activewear sales in the US rose 8% year-over-year in 2014. In contrast, apparel sales as a whole were flat in 2014, compared with 2013. In 1Q15, activewear sales grew by 9%, driven by sales of women’s and youth apparel. US dollar volume sales of pants grew in the mid-teens, while sweatshirts grew in the low teens year-over-year. Pants are a core category for Lululemon, as we discussed in Part 2 .
Earnings
In 1Q16, Lululemon projects a diluted EPS (or earnings per share) of $0.31–$0.33, compared with $0.32 in 1Q15. For the full year fiscal 2016, the company expects a diluted EPS of $1.85–$1.90, compared with $1.89 in fiscal 2015.
Outlook
Despite healthy revenue growth, Lululemon’s (LULU) margins are expected to be under pressure in 1Q16 and fiscal 2016, due to higher investments in new stores, product innovation, and other investments critical to the brand’s growth. Currency headwinds due to a stronger US dollar are also likely to persist. Some relief may be found in lower energy and certain input costs, relative to last year. However, LULU’s strong execution, both in-store and online, may see the vertically integrated player reap the benefits of these investments in the coming years.
The company’s demand in the US, its largest market, would also benefit from an improving economy. More affluent consumers have been spending more, which should benefit premium brands with trendy designs such as Lululemon.
For a detailed business overview of LULU, please read our series Company Overview: An Investor’s Key Guide to Lululemon Athletica.
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