Lululemon Ups Outlook - Analyst Blog

Lululemon Athletica Inc. (LULU), in a scheduled update to its business outlook for the fourth quarter of fiscal 2010, revised its earnings per share (EPS) guidance. On a bullish note, the company now sees earnings per share for the fourth quarter of fiscal 2010 in the range of 55 cents to 57 cents.

Lululemon had earlier expected earnings per share for the quarter in the range of 46 cents to 48 cents. However, given the signs of a solid performance in recent quarters, constructive trends in the third quarter, and strong results in retail and the e-commerce channel, the company foresees a healthy quarter ahead. The boost in the EPS outlook also indicates higher revenues for the quarter.  

Lululemon now expects net revenue in the range of $237 million to $239 million with comparable-store sales in the range of mid- to upper-twenties percentage increase on a constant-dollar basis. This is a sizeable increase from the prior top-line guidance in the range of $210 million to $215 million fueled by high teens comparable-store sales growth.  

Estimate Trend Revision

The Zacks Consensus Estimate on Lululemon earnings for the fourth quarter of fiscal 2010 is currently pegged at 56 cents a share, at par with the revised guidance. For the current year, the Zacks Consensus Estimate has moved up by 5 cents over the past month as 8 of 18 covering analysts increased their projections, while none of the analysts moved in the opposite direction.

Considering earnings surprises, the stock has been steady over the last four quarters, with all four positive surprises. The average remained positive at 33.88%. This implies that Lululemon has surpassed the Zacks Consensus Estimate by 33.88% over the said period.

The upside potential for the estimate in the fourth quarter, essentially a proxy for future earnings surprises, currently stands at 0.00%.

Our Take

We believe that Lululemon's better inventory management and e-commerce business will enhance both the top- and bottom-lines. This self-proclaimed, yoga-inspired athletic apparel company however, faces intense competition from rivals such as Nike Inc. (NKE) and Buckle Inc. (BKE).

We maintain our Outperform recommendation on Lululemon over the long term. The quantitative Zacks #1 Rank (short term Strong-Buy rating) on the stock indicates an upward pressure on the stock over the near term.

 
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