Wall Street Downgrades Lululemon Athletica after Its 4Q16 Results

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Wall Street Downgrades Lululemon Athletica after Its 4Q16 Results PART 3 OF 5

Currency Headwinds Taper Lululemon’s 4Q16 Bottom Line

Evaluating Lululemon Athletica’s 4Q16 earnings

As we discussed earlier, Lululemon Athletica (LULU) missed Wall Street’s 4Q16 earnings estimates by $0.01. The company’s adjusted earnings rose 17.6% YoY (year-over-year) to $1.00 per share. 

LULU’s earnings took a hit due to the stronger-than-expected Canadian dollar, which ended up being $0.02 higher than expected. For the full year, the stock’s earnings per share (or EPS) rose 15% to $2.14.

Currency Headwinds Taper Lululemon&#8217;s 4Q16 Bottom Line

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Gross margin continues to show improvement

Lululemon reported significant improvements in its gross margin during 2Q16 and 3Q16, driven by operational efficiencies in sourcing, logistics, and supply chain processes. These improvements continued into 4Q16, and the company saw its gross margin jump another 384 basis points. Its gross margin stood at 54.2% in the quarter.

Lululemon’s 2016 gross margin improved 280 basis points to 51.2%. The company’s gross margin is better than those of other sportswear peers such as Nike (NKE) at 45%, Under Armour (UAA) at 46.4%, and Columbia Sportswear (COLM) at 46.7%.

Looking ahead

In its guidance, LULU’s management warned of a slow start to 2017 and a sales comps fall in 1Q17. It guided $0.25–$0.27 for 1Q17 EPS, well below the consensus expectation of $0.39.

LULU’s 2017 guidance of $2.26–$2.36 per share also failed to please investors. The guidance estimate was ~10% lower than what analysts were expecting from the Canadian yoga and leisure apparel retailer. This weak outlook resulted in a host of downgrades by Wall Street. Read the next article to know more about analysts’ recent actions.

ETF investors seeking to add exposure to LULU can consider the iShares U.S. Consumer Goods ETF (IYK), which invests 0.24% of its portfolio in LULU.


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