Earnings Preview: Lululemon

Lululemon Athletica LULU - The leading yoga inspired athletic apparel company is expected to release its fourth quarter 2011 earnings just before the opening bell on Thursday, March 22. The current consensus estimate for earnings for the quarter is 49 cents a share. This compares to the company's previous guidance of 40 to 42 cents per share. For the fourth quarter, revenue is expected to be $360 million, representing growth in the range of 47% to 53% versus LULU's previous forecast range of 25% to 31%. Analysts' ratings on the stock are mainly divided between strong buy (8 analysts) and hold (8 analysts) as the shares are expected to keep outperforming as they have done consistently over the last year. Previous quarter results Looking back to the company's earnings release for the third quarter 2011, Lululemon posted earnings of 27 cents per share, beating analysts' consensus EPS estimates of 25 cents and 50% higher than the prior-year's quarterly earnings of 18 cents. From the year-ago quarter's earnings release we learned that the company's 16% increase in comparable-store sales and 71% rise in Direct-to-Consumer revenues resulted in a nearly 31% year-over-year increase in quarterly revenues which came in at $230.2 million. This number however came short of Wall Street revenue estimates of $234 million. The company perspective According to Seeking Alpha, Lululemon is expected to be trading above the $100 level at this time next year due to strong trends in the yoga industry and the company itself being a clear leader in the field. The existing store upgrades undertaken by LULU's management team and new store openings have the potential to generate net revenues of $358 to $363 million for the fourth quarter of fiscal 2011 compared with previous guidance of $327 to $332 million. Further, the company's continuous strategic investments to expand its global presence will further boost both its top and bottom lines and help to maintain and increase its strategic advantage edge over more prominent competitors like Nike Inc. NKE and Under Armour Inc. UA. The growing popularity of yoga among wealthy Americans has given a push to the entire sports apparel industry and Lululemon is a clear leader in this segment of the market. This catalyst, combined with management's disposition to be aggressive opening new stores and quickly expand national operations should help move the stock price higher for the rest of the year (maybe even to the $100 level discussed previously).