Earnings Preview: Lululemon

Lululemon Athletica Inc. (LULU), the leading athletic apparel and accessories retailer in Canada, the United States and Australia, is scheduled to report its first-quarter 2011 financial results before the opening bell on June 10, 2011.

The current Zacks Consensus Estimates for the quarter is earnings of 38 cents a share. For the quarter under review, revenue is expected at $180.0 million, according to the Zacks Consensus Estimate.

Fourth-Quarter 2010, Summary

Lululemon experienced one of the best financial results in its history with strong fourth-quarter 2010 results. The company has witnessed a consistent sales growth and margin expansion throughout its four quarter of fiscal 2010.

Lululemon reported robust fourth-quarter 2010 earnings of 64 cents a share, up 60.0% from the year-ago figure of 40 cents, handily beating the Zacks Consensus Estimate of 57 cents. The robust earnings growth was primarily driven by strong top-line growth and improved margins achieved through disciplined management and operational efficiencies.

The company’s 28.0% comparable-store sales growth and 152.0% rise in Direct-to-Consumer revenue aided the 52.8% year-over-year increase in fourth-quarter 2010 total revenue, which climbed to $245.4 million from $160.6 million reported in the year-ago quarter. Total revenue beats the Zacks Consensus Estimate of $239.0 million.

Guidance for First-Quarter and Fiscal 2011

Management estimates that existing store upgrades and new store openings have the potential to generate net revenues of $175.0 to $180.0 million for the first quarter of fiscal 2011. Comps are expected to be in the low double-digit for the reported quarter. For full fiscal 2011, revenue is expected to be in the range of $885.0 million – $900.0 million.

The company expects its earnings for the first quarter of fiscal 2011 to be in the range of 36 cents to 38 cents per share, while for fiscal 2011 it will be between $1.90 and $2.00 per share.

First-Quarter 2011 Zacks Consensus

The analyst covered by Zacks expects Lululemon to post first-quarter 2011 earnings of 38 cents a share faring better than earnings of 27 cents delivered in the prior-year quarter. The current Zacks Consensus Estimate ranges between earnings of 35 cents and 41 cents a share. The current Zacks Consensus Estimate has remained constant over the last 30 days.

With respect to earnings surprises, Lululemon has topped the Zacks Consensus Estimate over the last four quarters in the range of 12.3% to 44.0%. The average remained at 27.5%. This suggests that Lululemon has beaten the Zacks Consensus Estimate by an average of 27.5% in the trailing four quarters.

Our View

We believe that Lululemon’s strategic initiatives coupled with better inventory management and e-commerce business will boost both the top and bottom lines. However, the company faces intense competition from national and regional competitors such as Nike Inc. (NKE) and Under Armour Inc. (UA) which may dent its future performance.

Currently, Lululemon maintains a Zacks #2 Rank, which translates into a short-term Buy’ rating. Moreover, we retain a long-term ‘Outperform’ recommendation on the stock.

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