Earnings preview: Lululemon set to impress investors with robust Q2 results

Athletic apparel retailer Lululemon Athletica (Nasdaq: LULU) has been successful in overcoming the challenges facing the sector, which helped the company report financial results that exceeded its own prediction and analysts’ estimates in recent quarters. The outstanding performance lifted the market’s sentiment, driving the shares higher by 50% this year.

It is expected that the stock will get a fresh boost when the company reports its second-quarter results on Thursday at 4:05 pm ET. Earnings are forecast to grow 25% to $0.89 per share in the July quarter on revenues of $845.46 million, which represents a 17% annual growth. The estimate is slightly above the management’s projection for the quarter. The bullish outlook points to potential double-digit growth in comparable-store sales, in line with the recent trend.  

Related: Lululemon launches new personal care product line

While the chances of second-quarter results beating the Street view are very high, an uptick in expenses, mainly related to logistics, could drag down profitability. The management has cautioned that increased shipping activity amid the ongoing efforts to clear backlog might result in cost escalation. Also, the company is witnessing competition from the likes of Nike (NKE) and Gap (GAP) in the athleisure segment, which is a key contributor to its revenues.

However, the bottom-line might return to the high-growth mode in the long term, supported by the high-margin products being launched by the company and the rapid expansion of its e-commerce platform.

Investors are unlikely to get disappointed by the short-term issues and will continue to focus on the broader picture, given the fact that the management has raised its full-year outlook to reflect the strong store traffic and online sales. Moreover, plans are afoot to expand operations beyond the US and Canada to other geographical regions.

Related: Lululemon Athletica Q1 2019 Earnings Call Transcript

In the first quarter, revenues climbed about 20% year-over-year to $782.3 million, aided by a 14% growth in comparable-store sales. Direct-to-customer sales, which represent more than a quarter of the total revenue, rose by 33%. Buoyed by the solid top-line performance, earnings jumped 35% annually to $0.74 per share during the three-month period.

After losing momentum in the final weeks of last year, Lululemon shares gained about 50% so far this year and reached an all-time high last month. In the past twelve months, the stock moved up 22%.

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