lululemon athletica (NASDAQ: LULU) released fiscal first-quarter 2019 results late Wednesday, sending shares to a fresh all-time high in after-hours trading as the yoga apparel specialist smashed expectations and increased its full-year guidance.
More specifically on the former, Lululemon's quarterly net revenue climbed 20% year over year (or 22% at constant currencies) to $782.3 million -- well above the $755 million most analysts were modeling, helped by a 14% increase (16% at constant currencies) in total comparable-store sales. On the bottom line, that translated to net income of $96.6 million, or $0.74 per share, up 35% from $0.55 per share a year earlier, and again comfortably ahead of consensus estimates for $0.71.
But it shouldn't be enough to just read the headline numbers. Rather, investors would do well to take a closer look to see what's driving Lululemon's underlying business. To that end, here are five important points management discussed during Wednesday evening's quarterly earnings conference call.
Check out the latest earnings call transcript for lululemon athletica.
On bucking the industry's broader weakness
To be sure, Lululemon's top- and bottom-line results indicate broad-based strength it couldn't otherwise achieve if its message weren't resonating with both new and existing fans of the brand around the world. But it's particularly encouraging that Lululemon is able to achieve this strength in spite of broader weakness in the apparel markets.
On kicking off Lululemon's "Power of Three" growth plan
To those ends, McDonald noted that guests are "responding well" to innovations such as its new boxers, designed to "address all three elements of the science of feel; touch, temperature and movement," as well as a new Metal Vent Tech collection for men, and expanding the women's technical bra and high support product lines. In an effort to expand its reach, the company is also in the early stages of testing new self-care offerings in a handful of stores and online starting next week.
Meanwhile, on the omni-guest side, Lululemon's physical store comparable sales rose a healthy 8%, while digital comps soared 35%, with both channels benefiting from significant increases in traffic.
Finally, as for market expansion, McDonald said North American growth in both revenue (18%) and traffic remains healthy, and Lululemon remains on track to open 15 to 20 new domestic locations this year. In the meantime, outside of North America...
One standout for international growth
China is obviously Lululemon's most pronounced overachiever outside of North America. But to be clear, Lululemon is enjoying broad-based growth overseas, with revenue increases of 40% in the overall Asia-Pacific region, "strong starts" from the recently launched Japanese and Korean websites, and over 40% growth across all of Europe.
On putting last quarter's repurchase plan to work
When Lululemon authorized that $500 million buyback plan at the end of March, it was to replace a previous, substantially completed $600 million authorization that kicked off early last year. But considering its enviable cash generation and earnings power -- and having ended the first quarter with just over $576 million in cash and equivalents on its balance sheet -- the company is more than happy to put its full coffers to work by reducing the size of its float even with shares near all-time highs.
On assumptions for Lululemon's new guidance
For perspective, this new guidance represents an increase from Lululemon's previous targets, which called for 2019 revenue of $3.70 billion to $3.74 billion and for earnings per diluted share of $4.48 to $4.55. The latter is especially impressive considering it accounts for incremental tariff expenses stemming from escalating trade tensions between the U.S. and China.
In any case, apart the from the fact that Lululemon's shares are now up around 45% year to date as of this writing, today's report offers little fodder for the bears to attempt to pull the stock down. If the company is able to sustain the incredible momentum of its underlying business to achieve its longer-term goals, I suspect investors are poised to enjoy many more fresh highs in the coming years.
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