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Lululemon: Analyzing Potential Upsides and Downsides for 3Q16

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Nov. 30 2015, Published 10:40 a.m. ET

Lululemon Athletica’s (LULU) 3Q16 earnings scheduled to release on December 9

Yoga-wear retailer Lululemon Athletica (LULU) is slated to report its fiscal 3Q16 results on December 9, 2015, before the market opens. The third quarter of fiscal 2016 ended on October 31, 2015. The company’s been one of the fastest-growing apparel firms over the past five years. Its sales and EBITDA (earnings before interest, taxes, depreciation, and amortization) have grown at a CAGR (compound annual growth rate) of over 30%.

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Growth rates

Lululemon Athletica is a premium activewear firm. Its results have benefited from the consumer (XLY) shift towards “athleisurewear.” Peers Nike (NKE), Under Armour (UA), and Columbia Sportswear (COLM) have also shown strong performances, growing at a double-digit pace over the past five years. Their CAGRs for sales and EBITDA are as follows.

  1. Nike: 10% sales growth and 11.5% EBITDA growth
  2. Under Armour: 29.2% sales growth and 30.3% EBITDA growth
  3. Columbia Sportswear: 11% sales growth and 15.3% EBITDA growth

Nike, Under Armour, Lululemon Athletica, and Columbia Sportswear together make up 3.7% of the portfolio holdings in the Vanguard Consumer Discretionary ETF (VCR).

Results record

Despite the strong historical record, earnings for the yoga-wear retailer are expected to fall in 3Q16. Consensus Wall Street analyst estimates expect the company’s adjusted earnings per share (or EPS) to come in at $0.37, representing a fall of ~11.2% over the comparable quarter of the previous year. Lululemon Athletica’s results have beaten the consensus Wall Street adjusted EPS forecast since fiscal 2Q09.

However, the prospects are better for LULU’s sales in 3Q16. Consensus estimates project sales of ~$481.6 million in 3Q16, representing upside of 14.8% over fiscal 3Q15, when the company’s sales had come in at $419.4 million. Lululemon has come in ahead of market sales estimates in its last three quarters.

In this series, we’ll analyze the key drivers affecting Lululemon Athletica’s performance in the third quarter and its outlook for the second half of the fiscal year. Learn why Lululemon’s sales are expected to rise at a double-digit pace, and earnings will likely fall, in parts 2 and 3 of this series.

To read a detailed business overview of Lululemon Athletica, see Company Overview: An Investor’s Key Guide to Lululemon Athletica.

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