In the past week, every analyst estimate on
Lululemon Athletica Inc.
) has been revised higher for both this fiscal year and next. Such
unanimous agreement shows why this retailer of yoga-inspired
athletic apparel and accessories is a Zacks #1 Rank (Strong Buy)
with solid aggressive growth potential.
Last week, LULU posted a fiscal second-quarter 2012 earnings
surprise of 16.1%, which continued its impressive trend of positive
EPS surprises that stretches back several years. Other positive
factors in the quarter included solid same-store sales growth and
an impressive forward guidance. Shares have soared nearly 44.1%
since last month.
Fiscal Q2 Beat, Promising Outlook
On September 7, Lululemon Athletica posted solid second-quarter
2012 results on the back of robust top line growth, significant
comparable-store sales increases and lower tax. Earnings of 34
cents per share surged 30.8% from the prior-year period, beating
the Zacks Consensus Estimate of 31 cents per share.
Revenue of $282.6 million increased 33% from $212.3 million in the
year-ago quarter, while just missing the Zacks Consensus Estimate
of $283 million. Revenue growth mainly rode on a 15% upside in
comparable-store sales, a 91% jump in Direct-to-Consumer revenue
and new stores added to the company's portfolio.
Direct-to-Consumer revenue of $35.4 million represented about 12.5%
of the total revenue. Corporate-owned stores contributed about
81.9% to total revenue at $231.3 million. Other revenue, including
wholesale; showrooms; outlets; and, until last year, franchised
stores, totaled $15.9 million, accounting for about 5.6% of the
Operating income increased 18% to $70.2 million compared with $59.5
million a year ago, while operating margin contracted 320 basis
points to 24.8%. The company's effective tax rate declined to 29.2%
(on an adjusted basis) versus 35.7% in the year-ago quarter, driven
by the ongoing impact of the revised intercompany pricing
For fiscal 2012, management expects revenue between $1.345 billion
and $1.360 billion with earnings per share between $1.76 and $1.81.
Moreover, the company anticipates shares outstanding of 145.8
million and a tax rate of 28.9%.
ALL Earnings Estimates Revised Higher
The Zacks Consensus Estimate for fiscal 2012 rose 10.5% to $1.79
per share in the last 7 days, as all 14 estimates were revised
higher. This guidance suggests year-over-year growth of 42.1%.
The Zacks Consensus Estimate for fiscal 2013 increased 8.7% to
$2.24 per share over the same time frame as all 18 estimates moved
upwards, reflecting a year-over-year growth of 25.1%.
Valuation Looks Chic
Lululemon Athletica currently trades at a significant premium to
the peer group with a forward P/E of 42.7x, compared to the peer
group average of 18.0x. The company's price-to-book multiple of
16.4 also implies a substantial premium to the peer group multiple
of 2.4. Furthermore, the company currently has a PEG ratio of 1.5
times, a premium of 50% to the benchmark of 1 for a fairly priced
Nevertheless, the stock looks attractive given a trailing 12-month
ROE of 35.1%, which is substantially higher than the peer group
average of 13.6%. We believe the company's premium is also
warranted given a long-term earnings growth rate of 29.0%, compared
with the industry average of 14.8%.
Charts Reflect Growth
The chart below reflects sizeable growth in the company's share
price over the past six months, recording a year-to-date return of
63.5%. Moreover, the year-to-date return for the stock compares
favorably with the S&P 500's year-to-date return of 12.5%.
Shares of this apparel retailer currently trade above the 50 and
200-day moving averages, and have been doing so since August 15 and
August 22, respectively. Lululemon Athletica has a market cap of
$11.07 billion, while the average trade volume is 2,932K.
Founded in 1998 and based in Vancouver, Canada, Lululemon Athletica
is a yoga-inspired apparel company engaged in designing,
manufacturing and distributing athletic apparel for women and men.
The company offers a line of apparel and accessories, including
fitness pants, shorts, tops and jackets designed for athletic
pursuits, such as yoga, dance, running, and general fitness under
the Lululemon Athletica brand name. Its fitness-related accessories
comprise an array of items, such as bags, socks, underwear, yoga
mats, instructional yoga DVDs, water bottles, and headbands. As of
July 29, 2012, the company operated about 189 stores in North
America and Australia.
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