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Lululemon’s expansion spree pays off as Q4 results top expectations

Strong e-commerce sales and broad-based demand growth helped Yoga apparel maker Lululemon Athletica Inc. (LULU) achieve better than expected revenues and pre-tax profit in the fourth quarter. The stock gained significantly after the announcement, but retreated in the later trading hours.

Of late, Lululemon’s business strategy has been focused on recapturing the market share it had lost, due to the growing competition, through aggressing geographical expansion and widening of the menswear portfolio.

Announcing the first earnings results after the abrupt exit of its CEO Laurent Potdevin last month, the company said net income, including the impact of restructuring costs and a one-time tax charge, dropped 11% to $0.88 per share. Meanwhile, adjusted earnings surged 33% year-over-year to $1.33 per share exceeding market estimates.

Driving the bottom-line growth, revenues advanced 18% to $929 million and came in above expectations. Direct-to-customer revenue jumped 44%, and comparable store sales moved up 2%, compared to the fourth quarter of 2016.

Lululemon Adj. Earnings Surge 33% in Q4 on Higher Revenues
Lululemon Q4 2017 earnings infographic

Overall sales benefitted from the recent digital push and strong growth in the sales of jackets and men’s athletic pants. Going forward, the Vancouver-based athleisure retailer expects to sustain the momentum by focusing more on the menswear brands, such as a new collection of sleek jackets designed for spring.

The management said Lululemon is on track to achieve its long-term revenue target of $4 billion by 2020. The company is looking for earnings in the range of $0.44-0.46 per share in the first quarter of 2018, with projected revenues of $612-$617 million. Comparable store sales are forecasted to gain in the low double digits.

Adjusted earnings surged 33% year-over-year to $1.33 per share in the fourth quarter, exceeding estimates

Earnings are expected to be in the $3.00-$3.08 per share range for the whole of 2018 when the company targets total revenues between $2.985 billion and $3.022 billion.

During fiscal 2017, Lululemon repurchased 1.9 million shares for $53.85 per share. It opened 16 new stores in the fourth quarter and ended the year with a total of 404 stores. The store count is expected to be raised by about 20 in the current fiscal year.

Earlier this week, sportswear giant Nike (NKE) reported a 7% growth in its third-quarter revenue. Among the other players, L Brands (LB) and TJX Companies (TJX) are scheduled to announce the results of their most recent quarter on May 30.

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