An Upbeat Outlook Lifts Lululemon Athletica

Bouncing back from a major problem is always hard for companies, and there aren't that many businesses that have been able to return to their former glory. Yet lululemon athletica (NASDAQ: LULU) has managed to be one of the rare winners in that category, as its yoga-apparel business managed to regain customer loyalty after a nearly catastrophic quality-control problem several years ago threatened its existence.

Coming into Wednesday's fiscal first-quarter financial report, Lululemon shareholders had high hopes that the company would be able to sustain the positive momentum it's developed in recent quarters. Lululemon's quarterly numbers kept the confidence high, and a rosier outlook for the remainder of the year came as welcome news for shareholders.

Looking good at Lululemon

Lululemon's fiscal first-quarter results continued a nice string of good performances in past quarters. Revenue came in at $782.3 million, which was higher by 20% compared to the year-earlier period. That growth rate was quite a bit higher than the 16% increase that most of those following the stock were looking to see. Similarly, net income jumped 29%, to $96.6 million, and that produced earnings of $0.74 per share, topping the consensus forecast among investors for $0.71 per share.

It's hard to find fault with Lululemon's key fundamental metrics. Comparable sales overall climbed at an impressive 14% rate, even though they were held back by 2 percentage points of downward pressure from adverse currency movements. On the retail side of the business, comparable-store sales were higher by 6% compared to year-ago levels, matching its growth from last quarter. Direct-to-consumer sales rose 33% over the same period, showing the level of commitment that Lululemon has put into developing its e-commerce channel fully.

Lululemon also kept finding ways to get more from its business. Gross margin climbed nearly a full percentage point, to 53.9%, and operating margin was higher by almost half a percentage point, to 16.5%. Also helping the yoga retailer were lower effective income tax rates, which were down from almost 30% a year ago to 26.4% during the quarter.

The size of Lululemon's store network continued to rise during the quarter. With 15 new stores opened and none closing down over the first three months of the fiscal year, there are now 455 Lululemon locations encompassing almost 1.47 million square feet of retail space.

It was easy for CEO Calvin McDonald to be pleased with the company's performance. "Lululemon continues to see strong momentum across the entire business," McDonald said, and the CEO pointed to his internal teams, as well as the brand's followers, for helping to support the success of the business.

Can Lululemon Athletica keep picking up speed?

Lululemon remained optimistic for the future. In McDonald's words, "I look forward to the opportunities ahead of us and delivering on our Power of Three five-year vision."

In terms of guidance, that translated into higher expectations. For the second quarter, Lululemon expects to see sales of $825 million to $835 million, with comparable sales continuing to increase at a low double-digit percentage rate. Earnings for the quarter are expected to be between $0.86 and $0.88 per share.

Lululemon also took the opportunity to boost its guidance for the full fiscal year. The yoga retailer now expects fiscal 2019 revenue of $3.73 billion to $3.77 billion, up $30 million from its previous forecast. Earnings of $4.51 to $4.58 per share reflect just a $0.03 per-share boost from what it projected a few months ago, but Lululemon was quick to note that the guidance doesn't reflect any repurchases of shares that the retailer does between now and the end of the year.

Lululemon investors seemed to like the news, and the stock climbed 4% in after-hours trading following the announcement. Having successfully bounced back from its corporate tragedy several years ago, Lululemon is doing a good job keeping its customers satisfied and coming back for more.

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