Lululemon Athletica Inc. LULU plunged 16.4% yesterday as the company’s third-quarter guidance fell short of analysts’ expectations, thereby creating a negative sentiment among investors. Owing to lower-than-expected projections for the third quarter, analysts believe that the company will rely heavily on the upcoming holiday season to meet its full-year guidance.
However, Lululemon posted solid second-quarter fiscal 2015 results, wherein the top and bottom lines exceeded its own expectations. While the company’s earnings were in line with the Zacks Consensus Estimate, sales surpassed the same. Moreover, the company raised its outlook for fiscal 2015.
Q2 Highlights
Quarterly earnings of 34 cents per share were in line with the Zacks Consensus Estimate, rising about 3% year over year. Also, earnings exceeded the higher end of the company’s 31–33 cents per share guidance range.
Backed by strength in its eCommerce and store network, Lululemon’s quarterly revenues advanced 16% to $453 million, surpassing the Zacks Consensus Estimate of $445.4 million as well as the company’s projection of a range of $440–$445 million.
Total comparable sales (comps) grew 11% on a constant dollar basis, driven by a 35% surge in Direct-to-Consumer sales, coupled with a 6% jump in quarterly comps.
Moreover, Direct-to-Consumer net revenue, which soared 30% to $82.2 million, constituted about 18.2% of the total revenue, compared with a 16.2% contribution in the prior-year quarter.
Quarter in Detail
Gross profit rose 7% to $212 million in the second quarter of fiscal 2015. However, gross margin contracted 370 basis points (bps) to 46.8%.
The impact of improved gross profit was more than offset by the rise in SG&A expenses, leading the operating income to decline 2% to $66.6 million. Further, the operating income margin shriveled 270 bps to 14.7% in the quarter.
Store Update
During the reported quarter, the company opened 20 stores, taking the total store count to 336 by quarter end.
Financials
Lululemon exited the quarter with cash and cash equivalents of $541.3 million, inventories totaling $280.6 million, and stockholders' equity of $1,095.5 million.
During the second quarter, the company bought back 1 million shares, at an average price of $63.96 each.
Guidance
Management remains impressed with its robust performance in the second quarter. Looking ahead, the company intends to remain focused on undertaking investments in innovations, product introductions and enhancement of customer experience to drive growth, and strengthen its position. The company is encouraged by the progress of its global expansion plans and remains optimistic about its brand-building initiatives, worldwide.
Following a solid second quarter, Lululemon raised its guidance for fiscal 2015. The company now anticipates sales for the fiscal to range from $2.025–$2.055 billion, compared with $2.00–$2.05 billion projected earlier. This guidance is based on expectations of high single-digit comps growth on a constant dollar basis. Earnings for the fiscal are now envisioned in a band of $1.87–$1.92 per share, up from $1.86–$1.91 expected earlier.
For the third quarter of fiscal 2015, Lululemon expects revenues in the range of $477–$482 million, with comps growth in high-single digits. Further, Lululemon anticipates earnings for the third quarter to be in the band of 35–37 cents per share, which is much below the current Zacks Consensus Estimate of 41 cents.
Zacks Rank
Lululemon currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Columbia Sportswear Company COLM and Guess' Inc. GES, each with a Zacks Rank #1 (Strong Buy), and G-III Apparel Group, Ltd. GIII, with a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
COLUMBIA SPORTS (COLM): Free Stock Analysis Report
LULULEMON ATHLT (LULU): Free Stock Analysis Report
GUESS INC (GES): Free Stock Analysis Report
G-III APPAREL (GIII): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research