Lululemon's Profit Zooms in 3Q - Analyst Blog

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Lululemon Athletica Inc . ( LULU ) reported its third-quarter 2011 earnings of 27 cents a share, up 50% from the year-ago figure of 18 cents, handily beating the Zacks Consensus Estimate of 25 cents.

Financial Details

The company's 16% increase in comparable-store sales and 71% rise in Direct-to-Consumer revenue resulted in the near-about 31% year-over-year surge in the quarter's revenues. Total revenue, thus, climbed to $230.2 million from $175.8 million reported in the year-ago quarter. However, quarterly revenue fell short of the Zacks Consensus Estimate of $234 million.

Gross profit for the quarter came in at $128.5 million and increased 33% year over year, reflecting a high double-digit growth in its top line. Gross margin improved 70 basis points to 55.8% compared with 55.1% in the prior period, primarily due to reduced cost of goods sold as a percentage of total revenue.

Operating income for the quarter was $59.7 million compared with $42.4 million in the prior-year quarter, while operating margin expanded 180 basis points to 25.9%, reflecting operational efficiencies achieved by the company.

Cash and cash equivalents at the end of the quarter were $276.9 million and stockholders' equity came in at $529.1 million. Besides, the company is free from any long-term debts. Cash flow from operating activities for the year-to-date period came in at $53.5 million compared with $87.9 million in the prior period.

Store Update

Lululemon ended the quarter with a total of 165 stores.

Fourth-Quarter 2011 Outlook

Management estimates that existing store upgrades and new store openings have the potential to generate net revenues of $327 to $332 million for the fourth quarter of fiscal 2011. Comps are expected to be in the low-to-mid teens for the reported quarter. Based on these expectations, the company expects its earnings for the fourth quarter of fiscal 2011 to be in the range of 40 to 42 cents per share.

Our Take

We believe that Lululemon's strategic initiatives coupled with e-commerce business will boost both its top and bottom lines. However, the company faces intense competition from national and regional players, such as Nike Inc. ( NKE ) and Under Armour Inc. ( UA ), which may dent its future performance.

Currently, Lululemon maintains a Zacks #1 Rank, which translates into a short-term 'Strong Buy' rating. Moreover, we are retaining our long-term Outperform recommendation on the stock.

LULULEMON ATHLT ( LULU ): Free Stock Analysis Report

NIKE INC-B ( NKE ): Free Stock Analysis Report

UNDER ARMOUR-A ( UA ): Free Stock Analysis Report

Zacks Investment Research

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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