Shares of Lululemon LULU have fallen nearly 12% in the last three months after soaring for much of the year. But does this signal that investors are nervous about the yoga and athleisure giant's third-quarter financial results, or did Lululemon fall victim to the larger market pullback?
Lululemon has become an athletic apparel power that has made the likes of Nike NKE and Adidas ADDYY take notice. The Vancouver, Canada-based company's yoga-focused looks have driven the likes of Gap GPS and others to follow. Investors should also note that Lululemon operates a heavily direct-to-consumer business in an age where seemingly every retailer is heading in that direction in an Amazon AMZN -obsessed time.
Lululemon also plans to expand its menswear business to $1 billion by 2020 as it tries to hit an overall revenue goal of $4 billion. This might scare the likes of smaller players like Under Armour UAA and Puma.
The athleisure company is coming off a strong second quarter that saw its revenues surge 25% and its adjusted quarterly earnings skyrocket 97%. Looking ahead, Lululemon's third-quarter revenues are projected jumped 18.65% to reach $734.46 million, based on our current Zacks Consensus Estimate. At the bottom end of the income statement, LULU's adjusted quarterly earnings are expected to surge 23.2% to touch $0.69 per share.
Clearly, it seems that LULU could be headed for a slowdown compared to Q2. With that said, we still need to know how likely it is that Lululemon tops our quarterly earnings estimate as this could determine how the company's stock trades following its release.
Luckily, we can turn to our exclusive Earnings ESP figure to help us. The Zacks Earnings ESP (Expected Surprise Prediction) compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter. The Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change.
This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
Lululemon is currently a Zacks Rank #2 (Buy) and sports an Earnings ESP of +1.81%. Therefore, investors can think of Lululemon as a company that has a solid opportunity to beat our Q3 earnings estimate. We can also see that LULU boasts a strong history of earnings beats recently.
Lululemon is now scheduled to release its Q3 financial results after the market closes on Thursday.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report lululemon athletica inc. (LULU): Free Stock Analysis Report The Gap, Inc. (GPS): Free Stock Analysis Report Adidas AG (ADDYY): Free Stock Analysis Report NIKE, Inc. (NKE): Free Stock Analysis Report Under Armour, Inc. (UAA): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research