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lululemon (LULU) Up on Q4 Earnings & Sales Beat, Robust View
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lululemon athletica inc. (LULU - Free Report) delivered stellar fourth-quarter fiscal 2018, with sales and earnings surpassing estimates and improving year over year. This marked its eighth consecutive earnings beat while sales topped estimates for the 13th straight quarter.
The fiscal fourth-quarter results reflected a solid holiday season, backed by positive response to merchandise assortments along with continued investments to drive business growth. Notably, the company reached three of its targets for fiscal 2020 in 2018, two years ahead of the plan. In fiscal 2018, its operating margin was 21.5%, gross margin was just over 55% and e-commerce penetration improved to 26%.
lululemon is likely to witness strong momentum across the business while executing growth strategies in the future. Consequently, management provided a solid view for the first quarter and fiscal 2019.
Consequently, shares of the company improved 10.1% in the after-hours trading session. Further, this Zacks Rank #3 (Hold) stock has rallied 64.7% in the past year, surpassing the industry’s 13.6% growth.
Q4 Numbers
lululemon posted adjusted earnings of $1.85 per share, beating the Zacks Consensus Estimate of $1.74 and up 39.1% from $1.33 in the year-ago quarter. Earnings gained from solid top-line growth along with significant improvements in gross margin, offset by higher SG&A expenses.
lululemon athletica inc. Price, Consensus and EPS Surprise
This Vancouver, Canada-based company’s quarterly revenues advanced about 26% to $1,167.5 million and surpassed the Zacks Consensus Estimate of $1,149 million. On a constant-dollar basis, revenues increased 27%. The improvement can be attributed to strong comparable store sales (comps) performance and addition of stores. However, currency headwinds impacted revenues by $14.7 million. Notably, e-commerce contributed $344 million to sales, representing about 30% of total sales.
Total comps, including in-store comps and direct-to-consumer sales, grew 16% while constant-dollar comps were up 17%. Comps growth was driven by increase in traffic and conversion rates across stores and online. In-store comps improved 6% (or an increase of 7% in constant dollars) while DTC comps surged 37% (or an increase of 39% in constant dollars).
Margins
Gross profit rose 28% to $668.6 million in fourth-quarter fiscal 2018. Moreover, gross margin expanded 110 basis points (bps) to 57.3%. This improvement can be attributed to improvement of 170 bps in product margin, backed by reduced product costs, favorable product mix and lower markdowns. Further, occupancy and depreciation expense leverage of 20 bps aided the gross margin. This was partly offset by increase of 50 bps in product and supply chain costs due to ongoing investments in supply chain and product development. Additionally, gross margin included a negative currency impact of 30 bps.
Operating income increased nearly 28% to $331.4 million while the operating margin expanded 60 bps to 28.4%.
Store Updates
During the fiscal fourth quarter, the company opened 14 stores and completed nine co-located remodels. As of Feb 3, 2019, it operated 440 stores.
For fiscal 2019, the company targets opening nearly 40-50 company-operated stores, including 25-30 stores in international locations. It expects to open 12 stores in the fiscal first quarter.
Financials
lululemon exited fiscal 2018 with cash and cash equivalents of $881.3 million, and stockholders' equity of $1,446 million. Inventories were up nearly 22.8% to $404.8 million.
As of Feb 3, 2019, lululemon generated cash flow from operating activities of $742.8 million. Further, it spent nearly $69 million toward capital expenditure in fourth-quarter fiscal 2018, mainly related to IT and supply-chain investment, and store capital in new locations and renovations.
During the fiscal fourth quarter, the company bought back 1.5 million shares at an average price of $120.99 per share, completing the existing authorization of $600 million. In fiscal 2018, it repurchased 4.9 million shares for an average cost of $121.10 per share.
Further, the company authorized an additional share repurchase program worth up to $500 million.
Q1 Forecasts
For first-quarter fiscal 2019, lululemon anticipates revenues of $740-$750 million, with constant-dollar comps expected to increase in low-double digits. The company expects gross margin to expand marginally from the year-ago quarter. This is likely to be driven by higher product margins alongside an incremental reduction in average unit costs, backed by ongoing supply-chain initiatives to scale efficiencies. Management anticipates SG&A expenses rate to be flat to up marginally, driven by persistent investments to boost the top line.
lululemon envisions earnings of 68-70 cents per share for the fiscal fourth quarter compared with adjusted earnings per share of 55 cents in the year-ago quarter. Effective tax rate is expected to be nearly 28%.
FY19 View
For fiscal 2019, lululemon projects revenues of $3.7-$3.74, with comps growth of low-double digits, on a constant-dollar basis. It expects modest gross margin expansion, driven by anticipated gains in product margins, and leverage on occupancy and other fixed costs. SG&A expenses are likely to leverage modestly. Earnings for the fiscal year are projected to be $4.48-$4.55 per share. Adjusted effective tax rate is expected to be 28% in fiscal 2019.
Capital expenditure for fiscal 2019 is estimated to be $265-$275 million. Capital spending will be directed to the ramp-up of store renovation and relocation programs, store openings, and investments in technology and other general infrastructure projects.
G-III Apparel Group, LTD. (GIII - Free Report) has an expected long-term earnings growth rate of 15%. Moreover, it currently sports a Zacks Rank #1.
Columbia Sportswear Company (COLM - Free Report) , also a Zacks Rank #1 stock, has an expected long term earnings growth rate of 10.9%.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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lululemon (LULU) Up on Q4 Earnings & Sales Beat, Robust View
lululemon athletica inc. (LULU - Free Report) delivered stellar fourth-quarter fiscal 2018, with sales and earnings surpassing estimates and improving year over year. This marked its eighth consecutive earnings beat while sales topped estimates for the 13th straight quarter.
The fiscal fourth-quarter results reflected a solid holiday season, backed by positive response to merchandise assortments along with continued investments to drive business growth. Notably, the company reached three of its targets for fiscal 2020 in 2018, two years ahead of the plan. In fiscal 2018, its operating margin was 21.5%, gross margin was just over 55% and e-commerce penetration improved to 26%.
lululemon is likely to witness strong momentum across the business while executing growth strategies in the future. Consequently, management provided a solid view for the first quarter and fiscal 2019.
Consequently, shares of the company improved 10.1% in the after-hours trading session. Further, this Zacks Rank #3 (Hold) stock has rallied 64.7% in the past year, surpassing the industry’s 13.6% growth.
Q4 Numbers
lululemon posted adjusted earnings of $1.85 per share, beating the Zacks Consensus Estimate of $1.74 and up 39.1% from $1.33 in the year-ago quarter. Earnings gained from solid top-line growth along with significant improvements in gross margin, offset by higher SG&A expenses.
lululemon athletica inc. Price, Consensus and EPS Surprise
lululemon athletica inc. Price, Consensus and EPS Surprise | lululemon athletica inc. Quote
This Vancouver, Canada-based company’s quarterly revenues advanced about 26% to $1,167.5 million and surpassed the Zacks Consensus Estimate of $1,149 million. On a constant-dollar basis, revenues increased 27%. The improvement can be attributed to strong comparable store sales (comps) performance and addition of stores. However, currency headwinds impacted revenues by $14.7 million. Notably, e-commerce contributed $344 million to sales, representing about 30% of total sales.
Total comps, including in-store comps and direct-to-consumer sales, grew 16% while constant-dollar comps were up 17%. Comps growth was driven by increase in traffic and conversion rates across stores and online. In-store comps improved 6% (or an increase of 7% in constant dollars) while DTC comps surged 37% (or an increase of 39% in constant dollars).
Margins
Gross profit rose 28% to $668.6 million in fourth-quarter fiscal 2018. Moreover, gross margin expanded 110 basis points (bps) to 57.3%. This improvement can be attributed to improvement of 170 bps in product margin, backed by reduced product costs, favorable product mix and lower markdowns. Further, occupancy and depreciation expense leverage of 20 bps aided the gross margin. This was partly offset by increase of 50 bps in product and supply chain costs due to ongoing investments in supply chain and product development. Additionally, gross margin included a negative currency impact of 30 bps.
Operating income increased nearly 28% to $331.4 million while the operating margin expanded 60 bps to 28.4%.
Store Updates
During the fiscal fourth quarter, the company opened 14 stores and completed nine co-located remodels. As of Feb 3, 2019, it operated 440 stores.
For fiscal 2019, the company targets opening nearly 40-50 company-operated stores, including 25-30 stores in international locations. It expects to open 12 stores in the fiscal first quarter.
Financials
lululemon exited fiscal 2018 with cash and cash equivalents of $881.3 million, and stockholders' equity of $1,446 million. Inventories were up nearly 22.8% to $404.8 million.
As of Feb 3, 2019, lululemon generated cash flow from operating activities of $742.8 million. Further, it spent nearly $69 million toward capital expenditure in fourth-quarter fiscal 2018, mainly related to IT and supply-chain investment, and store capital in new locations and renovations.
During the fiscal fourth quarter, the company bought back 1.5 million shares at an average price of $120.99 per share, completing the existing authorization of $600 million. In fiscal 2018, it repurchased 4.9 million shares for an average cost of $121.10 per share.
Further, the company authorized an additional share repurchase program worth up to $500 million.
Q1 Forecasts
For first-quarter fiscal 2019, lululemon anticipates revenues of $740-$750 million, with constant-dollar comps expected to increase in low-double digits. The company expects gross margin to expand marginally from the year-ago quarter. This is likely to be driven by higher product margins alongside an incremental reduction in average unit costs, backed by ongoing supply-chain initiatives to scale efficiencies. Management anticipates SG&A expenses rate to be flat to up marginally, driven by persistent investments to boost the top line.
lululemon envisions earnings of 68-70 cents per share for the fiscal fourth quarter compared with adjusted earnings per share of 55 cents in the year-ago quarter. Effective tax rate is expected to be nearly 28%.
FY19 View
For fiscal 2019, lululemon projects revenues of $3.7-$3.74, with comps growth of low-double digits, on a constant-dollar basis. It expects modest gross margin expansion, driven by anticipated gains in product margins, and leverage on occupancy and other fixed costs. SG&A expenses are likely to leverage modestly. Earnings for the fiscal year are projected to be $4.48-$4.55 per share. Adjusted effective tax rate is expected to be 28% in fiscal 2019.
Capital expenditure for fiscal 2019 is estimated to be $265-$275 million. Capital spending will be directed to the ramp-up of store renovation and relocation programs, store openings, and investments in technology and other general infrastructure projects.
Looking for Better-Ranked Stocks? Look at These
Ralph Lauren Corporation (RL - Free Report) flaunts a Zacks Rank #1 (Strong Buy) at present and an expected long-term earnings growth rate of 10.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
G-III Apparel Group, LTD. (GIII - Free Report) has an expected long-term earnings growth rate of 15%. Moreover, it currently sports a Zacks Rank #1.
Columbia Sportswear Company (COLM - Free Report) , also a Zacks Rank #1 stock, has an expected long term earnings growth rate of 10.9%.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
See Latest Stocks Today >>