Why Lululemon Should Be In Your Portfolio Ahead Of Earnings

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Lululemon Athletica (LULU) Consumer Discretionary - Textiles, Apparel & Luxury Goods | Reports June 8, Before Market Opens

Athleisure continues to be one of the fastest growing segments throughout the apparel industry, with retail otherwise hitting some major roadblocks this quarter. Many trace this trend directly to Lululemon. Despite a strong holiday quarter, with results even surpassing raised corporate guidance, expectations for Q1 are muted as competitors with lower price points begin to steal market share.

The Estimize consensus is calling for earnings per share of 32 cents on $489.12 million in revenue, 2 cent higher than Wall Street on the bottom line and $1 million on the top. Compared to a year earlier profitability is projected to decline by 6% while sales could grow by 15%. Per share estimates have been cut by 11% since its last reports, reflecting analyst’s negative sentiment towards the company. Fortunately, shares of Lululemon are a positive mover during earnings season. The stock typically increases 2% 5 days and 30 days following its report. 

This past quarter was highlighted by a 17% increase in revenue supported by growth in key channels including comp store sales and direct to consumer revenue. Lululemon remains focused on undertaking new investments and initiatives to strengthen its position in the burgeoning athleisure space. In particular, the revamped womens leggings segment and the introduction of men’s clothing has accelerated same store sales growth and improved margins.

Lululemon remains well positioned to sustain its high income core customers but must remain aggressive to stave off competitive threats from Nike, Under Armour and Gap’s Athleta brand. As consumers become more value-focused, LULU is losing out to those with lower price-points, although their core remains very loyal.