lululemon athletica Accelerates Growth, Raises Guidance

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Three months ago, shares of lululemon athletica (NASDAQ: LULU) jumped higher after the company not only beat expectations with its fiscal first-quarter results but also announced it would restructure its kidcentric ivivva concept to be primarily an e-commerce brand. Now, lululemon stock is rising again on the heels of the yoga apparel specialist's fiscal second-quarter report, punctuated by strong comparable-sales growth, impressive gains from the direct-to-consumer segment, and generally positive trends favoring the overall business.

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Let's stretch out to get a closer look at what lululemon accomplished over the past few months, as well as what investors can expect from the company going forward.

Lululemon Athletica results: The raw numbers

Metric

Fiscal Q2 2017

Fiscal Q2 2016

Year-Over-Year Growth

Revenue

$581.1 million

$514.5 million

12.9%

GAAP net income

$48.7 million

$53.6 million

(9.1%)

GAAP earnings per share

$0.36

$0.39

(7.7%)

What happened with lululemon this quarter?

  • On an adjusted (non-GAAP) basis, which adds perspective by excluding ivivva restructuring costs and accounting for a discrete tax item in last year's second quarter, earnings were $0.39 per share, up from $0.38 per share in the same year-ago period.
  • Comparable sales climbed 7% year over year.
  • Direct-to-consumer (DTC) revenue rose 29% (or 30% at constant currency), bolstered in part by an online warehouse sale held during the quarter. Excluding that sale, DTC revenue climbed a still-respectable 15% (16% at constant currency).
  • Lululemon opened 11 stores and closed a single location in the fiscal second quarter, ending the period with 421 stores.
  • Repurchased 1.5 million shares of common stock during the quarter at an average cost of $52.93 per share.
  • Ended the quarter with $721.2 million in cash and equivalents, up from $535.3 million this time a year ago.

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What management had to say

Lululemon CEO Laurent Potdevin added:

Our performance reflects the growing global consumer response to lululemon's unique position as the leading brand that defines an active, mindful lifestyle. Through continuing to deliver category-defining product innovation, we are creating experiences that our guests, both existing and new, desire. This strong brand momentum reinforces my confidence in our long-term strategy. The acceleration that we have seen across the business in the second quarter enables us to take another positive step on our path toward achieving $4 billion in revenue by 2020.

Looking forward 

Lululemon continues to expect to recognize total pre-tax costs of between $50 million and $60 million this fiscal year related to its ivivva restructuring, $23.2 million of which has already been recognized in the first half. In the meantime, for the current fiscal third quarter, lululemon sees revenue arriving in the range of $605 million to $615 million, assuming a comparable-sales increase in the mid-single-digit range at constant currency. On the bottom line, that should translate to GAAP earnings per share of $0.33 to $0.35 and adjusted earnings per share of $0.50 to $0.52. 

As such, lululemon now anticipates full fiscal-year revenue in the range of $2.545 billion to $2.595 billion, marking an increase from its previous outlook for a range of $2.53 billion to $2.58 billion. This new range continues to assume a low-single-digit percent increase in comparable sales. Finally, lululemon expects full fiscal-year GAAP earnings per share of $2.04 to $2.11 and adjusted earnings per share of $2.35 to $2.42. The latter range represents another increase from previous guidance for full-year adjusted EPS of $2.26 to $2.36.

All told, there was plenty to like about lululemon athletica's latest quarter as the solidly profitable company accelerates its momentum, grows its store base, and reshapes its promising ivivva brand to better capitalize on the online market. So with shares still down around 11% year to date leading up to this report, I think the market is right to bid up lululemon stock again right now.

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Steve Symington owns shares of Lululemon Athletica. The Motley Fool owns shares of and recommends Lululemon Athletica. The Motley Fool has a disclosure policy.