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LULU Stock Rises on Fiscal 2016 Results, Beating XLY and XRT

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Lululemon’s stock price movement

Lululemon Athletica’s (LULU) stock rose 10.7% to $67.80 on March 30, 2016, the day the company declared its fourth quarter results for fiscal 2016. The stock has risen more than 29% year-to-date. LULU has outperformed both the Consumer Discretionary Select Sector SPDR Fund (XLY) and the SPDR S&P Retail ETF (XRT) by a large margin. XLY and XRT have returned 1.6% and 7.2, respectively, in 2016.

In contrast, apparel peers Hanesbrands (HBI), L Brands (LB), and The Gap (GPS) have returned -3.3%, -5.4%, and 20.1%, respectively, in 2016.[1. returns computed through March 31, 2016]

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Return components: Dividend disadvantage

LULU’s stock price rose due to its upbeat performance in the year and the longer-term guidance provided at the fourth quarter earnings conference call. We looked at the company’s plans in the previous article.

However, all of LULU’s gains have come from stock price appreciation. Growth stock LULU, which went public in 2007, doesn’t pay a dividend yet. The company is utilizing its surplus cash on new stores, building its international presence, and other growth investments.

While The Gap has had a lean year, the company paid about 40% of its earnings as dividends in fiscal 2016. L Brands paid a special dividend of $2 per share besides its $0.50-per-share quarterly dividend, taking its earnings payout ratio for fiscal 2016 to more than 93%.

That being said, LULU is growing far more quickly than any of these companies, with an enviable double-digit growth rate in fiscal 2016. That growth rate is projected to continue over the next five years.

Investors will likely need patience in terms of a regular dividend stream from the stock, given the growth opportunities ahead of the company.

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