Lululemon Athletica Inc.
), a leading yoga-inspired athletic apparel and accessories
retailer, posted better-than-expected first-quarter fiscal 2013
results on the back of robust sales growth. The quarterly
earnings of 32 cents a share beat the Zacks Consensus Estimate by
a couple of cents but remained flat compared to the year-ago
quarter. We observed that soft margins remained a deterrent in
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Quarter in detail
Lululemon's quarterly revenue of $345.8 million was up 21% from
$285.7 million in the comparable year-ago quarter and came
marginally ahead of the Zacks Consensus Estimate of $345.0
million. Revenue growth in the quarter mainly rode on a 7% upside
in comparable-store sales and a 40% increase in
Direct-to-Consumer revenue. Direct-to-Consumer revenue of $54.0
million in the first quarter represented about 15.6% of the total
Gross profit during the quarter increased 9% to $170.7 million
from the prior-year quarter. However, gross margin contracted 560
basis points to 49.4% compared with 55.0% in the first quarter of
fiscal 2012, primarily due to the $17.5 million write-off on cost
of sales related to the pull-back of black luon pants that did
not meet standards, offset by improved product margin.
Selling, general & administrative (SG&A) expenses
increased 24.5% to $104.8 million compared with $84.2 million in
the same period of fiscal 2012, while as a percentage of sales it
expanded 90 basis points to 30.3%. The dollar increase in
SG&A expenses was mainly due to higher compensation and
operating costs related to new store openings, increased labor
expenses at existing stores due to higher sales volumes,
increased variable operating costs related to the e-Commerce
business and higher expenses at the store support center,
including salaries, administrative expenses, professional fees,
management incentives and stock-based compensation associated
with the company's business expansion.
During the quarter, the company's operating income declined 9.8%
to $65.9 million compared with $73.1 million a year ago.
Consequently, operating margin contracted 650 basis points to
Lululemon exited the first quarter with cash and cash equivalents
of $588.4 million, up 38.7% from the year-ago quarter level.
Inventories at the end of the quarter summed up to $143.7 million
versus $107.7 million at the end of the year-ago quarter.
Stockholders' equity came in at $930.1 million. In addition, the
company is free from any long-term debts.
In the first quarter of fiscal 2013, Lululemon generated about
$25.1 million of cash flow from operating activities compared
with $16.0 million in first quarter fiscal 2012. The company
incurred capital expenditures of $21 million during the quarter.
During the reported quarter, the company opened 8 new stores and
closed down 1 store, bringing the total store count to 218 in
North America and Australia.
Lululemon forecasts sales to be in the range of $340-$345 million
in the second quarter, with comparable-store sales growth
expected to come in the 5%-7% range. Moreover, the company
projects second-quarter fiscal 2013 earnings between 33 cents and
35 cents per share, based on forecasts of 146.0 million shares
outstanding and a 30% tax rate.
For fiscal 2013, the company expects revenue in the band of
$1,645 - $1,665 million, up from the earlier forecast of $1,615 -
$1,640 million. Earnings per share for the full year are
anticipated in the range of $1.96 to $2.01, up from $1.95 - $1.99
per share guided earlier. Full-year earnings are also based on
shares outstanding projections of 146.2 million and a tax rate of
Other Stocks to Consider
Lululemon currently holds a Zacks Rank #3 (Hold). Other stocks
performing well in the apparel/shoe retail space include
The Children's Place Retail Stores Inc.
Stein Mart Inc.
). All these stocks carry a Zacks Rank #2 (Buy).