Will lululemon athletica Disappoint Investors on Wednesday?

MarketsMotley Fool

lululemon athletica (NASDAQ: LULU) is set to post its fiscal fourth-quarter results after the market closes on Wednesday, March 27. The yoga-inspired sports apparel specialist has stretched past management's forecast in each of the first three quarters of the year, and that streak helps explain why the stock trounced the market in 2018. But can it extend that impressive record to four straight wins?

Let's take a closer look at investor expectations around this high-performing business.

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Market share

Most industry participants, including Nike, are posting stronger sales growth these days, but Lululemon has been operating at another level lately. Revenue gains clocked in at 21% last quarter to surpass the upgraded guidance that management had issued a few months earlier. Nike's growth, in contrast, has been in the high single digits.

The market share wins were even more pronounced online, where sales shot up 44% to account for more than one-quarter of Lululemon's business.

CEO Calvin McDonald and his executive team found plenty of reasons for optimism in those demand trends, and so they raised their sales outlook following the peak holiday shopping period. As it stands now, Lululemon is predicting same-store sales growth of around 10% as revenue rises over 20% to between $1.14 billion and $1.15 billion. Wall Street pros are a bit more optimistic, with most who follow the stock expecting a 24% overall sales boost to $1.15 billion.

Given the fact that Nike is attacking the digital selling channel and also targeting yoga apparel right now, it will be interesting to learn whether Lululemon lost any of its market share momentum over the last few months.

Profits and outlook

Lululemon's digital sales, with help from its flood of new product introductions, have been lifting profitability in recent quarters. Gross profit margin improved by 2 percentage points last quarter and is inching back toward the all-time high the retailer achieved back in 2011.

Investors are looking for more gains on the way. In fact, CFO Patrick Guido said in December that, despite a slowing profitability boost in the holiday quarter, Lululemon is aiming to pair innovative product launches with cost cuts and supply chain improvements to improve its earnings power over the next few years. For evidence of progress along those lines, look for Lululemon to announce healthy gross and operating profit margins this week. These gains are a key reason why investors are expecting earnings to rise 24% to $0.68 per share this quarter.

The biggest metrics in this report might be forward-looking, though. Lululemon is likely to have some good reasons to forecast a strong fiscal 2019 since sales are on pace to jump 23% to $3.3 billion this past year. Earnings should have shot up to $3.75 per share from $2.59 per share in 2017.

It's not practical to think Lululemon could achieve another year in which sales and earnings both rise by over 20%. However, double-digit growth in both metrics seems plausible. That would put the chain ahead of its goal of reaching $4 billion of annual sales by 2020, which means the management team might issue a brighter -- and more aggressive -- long-term outlook along with this quarterly report.

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Demitrios Kalogeropoulos owns shares of NKE. The Motley Fool recommends Lululemon Athletica and NKE. The Motley Fool has a disclosure policy.