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Can Lululemon's Solid Strategies & Results Drive the Stock?

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The designer and manufacturer of yoga-inspired athletic products, Lululemon Athletica Inc.LULU surely deserves a look, as its strategic growth efforts and impressive results have been driving the stock for a while now. Fueled by these factors, this Zacks Rank #3 (Hold) stock has surged nearly 29% on a year-to-date basis.

LULULEMON ATHLT Price and Consensus

LULULEMON ATHLT Price and Consensus | LULULEMON ATHLT Quote

Talking about brownie points, Lululemon's splendid performance history could top the list.

The company recently posted second-quarter fiscal 2016 results, wherein both top and bottom lines improved year over year. Further, earnings matched estimates while sales marginally surpassed the same. While the quarter marked the company's third consecutive sales beat, Lululemon's earnings have either outperformed or matched our estimates for nearly seven years now except for a miss in third-quarter fiscal 2015.

The company's bottom line in the second quarter gained from sustained top-line momentum, accelerated gross margin growth and efficient inventory management, with revenues being fueled by strong comparable store sales growth and store base expansion.

Adding a cherry on the cake, management raised its earnings and sales guidance for fiscal 2016, alongside issuing an encouraging outlook for the third quarter with expectations of gross margin expansion in the second half of the fiscal. Together, these factors underscore the company's strong prospects, thereby instilling confidence among investors.

Coming to the company's inherent strength and growth strategies, we remain impressed with its favorable demographic and secular trends that ensure top-line growth over the longer term. Also, Lululemon's strategy for 2020 bodes well, per which, it aims to double its revenues to about $4 billion and more than double its earnings by 2020.

To achieve these targets, the company outlined four distinct growth strategies, including product innovation, building store fleet in North America, digital business as well as international expansion. Clearly, these plans position the company well for sustained growth and improved profitability over the next five years.

However, Lululemon remains prone to unfavorable currency movements, which also played spoilsport in the second quarter. Despite a heartening outlook, any prevalence of these currency woes can hurt results. Stiff competition from other players also remains a concern.

Nonetheless, it seems as if Lululemon's solid market position and robust growth endeavors - including its 2020 strategy, digital development and store expansion − will counter these hurdles and help the company sustain its momentum.

Stocks to Consider

Some better-ranked stocks in the same industry include Delta Apparel Inc. DLA , PVH Corp. PVH and Ralph Lauren Corporation RL , each with a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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