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Lululemon Q2 Earnings Preview: Can LULU Stock Continue Its Climb?

Benjamin Rains

Shares of Lululemon LULU have surged over 48% in 2019 to crush the Apparel Market’s 10% average, along with giants it hopes to be compared to one day such as Nike NKE and Adidas ADDYY. Overall, the second quarter earnings season has been a mixed bag for retailers, so let’s see what to expect from Lululemon’s Q2 results that are due out on September 5 to help gauge if the yoga apparel firm’s impressive run might continue.

Quick Q2 Retail Overview

As of Thursday, second quarter results from 477 S&P 500 were out, with overall earnings up +0.5% on +4.7% higher revenues. For the Retail sector, 79% of firms in the index had already reported, with EPS up +3.6% on +8.3% sales growth. Much of this strength, however, was highlighted by Walmart WMT and Target’s TGT strong quarters that helped once again prove to Wall Street that the big-box brick and mortar firms are ready to thrive in the Amazon AMZN age.

Meanwhile, the department stores, including Macy’s M show few solid signs of a longer-term comeback. On top of that, Foot Locker FL stock tumbled over 17% Friday after it released disappointing quarterly results (also read: Q2 Earnings Season Scorecard).

LULU’s Pitch

Lululemon helped jump start the athleisure market that has seen everyone from Nike to Gap GPS roll out their own competing brands. The Vancouver-based company has also expanded its menswear business, introduced more outwear offerings that see it compete alongside Canada Goose GOOS, and jump into self-care products.

One could even argue that Lululemon’s rise to prominence has sparked a change in workplace attire that has seen many businesses shift to a more casual dress code. Lulu now offers an array of work-appropriate and business clausal clothes that can be seen from happy-hours to golf courses. The firm also operates a mostly direct-to-consumer business and boosted its global store count to 455 at the end of Q1, up from 411 in the year-ago period.

Lululemon executives expects to more than double the size of its men’s revenues by 2023. Plus, the firm projects that it will more than double its digital revenue and quadruple its international sales. This expansion includes a larger push outside of North America and Australia/New Zealand into Asia and Europe.

 

 

 

 

Outlook & Earnings Trends

Looking ahead, LULU’s Q2 revenue is projected to pop 16.4% from $723.5 million in the year-ago period to reach $842.41 million, based on our current Zacks Consensus Estimate. This would come in below last quarter’s 20.4% sales expansion but come on top of Q2 2018’s 25% growth. Lululemon has posted five straight periods of quarterly sales growth between 20% and 25%. Yet, prior to that stretch, LULU’s revenue growth often hovered in the mid-teens.

Peeking further ahead, the athletic apparel firm’s fiscal 2019 sales are projected to climb 15.5% to $3.80 billion, with 2020 expected to come in 15% higher to reach $4.36 billion. This top-line expansion would, of course, mark a slowdown compared to 2018’s 24% expansion. Still, both 2019 and 2020’s projection would see LULU surpass its growth rates from 2017 through 2014.

At the bottom end of the income statement, Lululemon is projected to see its adjusted Q2 earnings jump 25.4% to reach $0.89 a share. This would also mark a slowdown from Q1’s 35% earnings growth. We should note that LULU has easily topped earnings estimates over the trailing four periods and its earnings estimate revision activity has trended more heavily upward recently.

Bottom Line

Lululemon stock has been on a stellar run over the last five years. Despite its strong 2019, LULU rests roughly 7% below its 52-week highs, which could give shares room to run heading into its earnings release. Lululemon is a Zacks Rank #3 (Hold) right now. And investors should pay close attention to any e-commerce updates and comparable store sales, which popped 16% last quarter.

It’s hard to imagine Lululemon stock not eventually continuing its upward climb, even if it falls short of Q2 estimates, given that it is one of the biggest names in retail these days and is posting such strong growth, especially within a trendy industry. Lululemon is scheduled to release its Q2 fiscal 2019 financial results after the closing bell on Thursday, September 5. Make sure to come back to Zacks for a full break down of its actual results then.

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