Will lululemon's (LULU) Growth Strategies Drive Q2 Earnings?

lululemon athletica inc.LULU is slated to report second-quarter fiscal 2018 results on Aug 30. The question lingering in investors' minds is whether this yoga-inspired athletic apparel retailer will be able to deliver another positive earnings surprise in the to-be-reported quarter.

The company pulled off a positive earnings surprise of 19.6% in the last-reported quarter. In the trailing four quarters, lululemon surpassed the Zacks Consensus Estimate by an average of 10.9%. Let's see how things are shaping up prior to this announcement.

lululemon athletica inc. Price and EPS Surprise

lululemon athletica inc. Price and EPS Surprise | lululemon athletica inc. Quote

What to Expect?

The Zacks Consensus Estimate for the quarter under review is pegged at 49 cents per share, reflecting year-over-year growth of 25.6%. However, estimates were unchanged in the last 30 days. Further, the Zacks Consensus Estimate for revenues is $669.1 million, up about 15.2% from the year-ago quarter.

Moreover, lululemon's share price has increased 30.7% in the last three months compared with the industry 's growth of 7.3%.

Factors at Play

lululemon remains committed to its strategy for 2020, which revolves around four distinct growth strategies, including product innovation, building store fleet in North America, broadening of digital business and international expansion. Synergies from these initiatives collectively reflect the strength of the company's business. It also has been aiding its earnings performance.

Moreover, the company provided an encouraging outlook for the second quarter and raised its view for fiscal 2018. For second-quarter fiscal 2018, lululemon anticipates revenues of $660-$665 million, with constant dollar comps expected to increase in the high-single-digit range. It envisions earnings for the second quarter to be 46-48 cents per share.

For fiscal 2018, the company projects revenues of $3.04-$3.075 billion compared with $2.985-$3.22 billion projected earlier. The guidance is based on comps growth of a high-single digit, on a constant-dollar basis, versus the prior forecast of mid- to high-single digit growth. Earnings for the fiscal are projected to be $3.10-$3.18 per share versus the previous guidance of $3-$3.08.

Notably, lululemon's e-commerce retailing channel is its key growth engine. Investments in the website and mobile app helped it improve traffic and conversion rates, as evident from 60% growth in e-commerce sales (24.3% of total sales) in first-quarter fiscal 2018. With continued progress on e-commerce strategy, the company is on track to deliver $4 billion in total revenues by 2020, with e-commerce accounting for more than one-third of sales.

Further, lululemon's international growth potential and strength in the athleisure category presents a long-term opportunity. It has significant scope to expand square footage and enhance business globally, particularly in the underpenetrated European and Asian markets. The company targets nearly 14% increase in global square footage in fiscal 2018 and plans to add 20-30 international stores. It expects international business, including e-commerce, to account for nearly 20-25% of total sales by 2020.

Moreover, the introduction of innovative products has been a winning strategy for lululemon. Men's category presents significant growth opportunity, with the potential to expand product lines into the office travel category. The Men's business is on track to exceed the target of at least 25% market penetration.

What the Zacks Model Unveils

Our proven model shows that lululemon is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

The company's Earnings ESP of +1.53% and Zacks Rank #3 make us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Other Stocks With Favorable Combination

Here are some other companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat.

Guess? Inc. GES has an Earnings ESP of +7.14% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Dollar Tree Inc. DLTR has an Earnings ESP of +2.41% and a Zacks Rank #2.

PVH Corp. PVH has an Earnings ESP of +0.16% and a Zacks Rank #3.

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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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