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LULU Is Up by ~28% This Year, but What about Its Earnings Outlook?

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LULU’s management guidance for fiscal 1Q17 and fiscal 2017

Lululemon Athletica’s (LULU) management expects its fiscal 2017 diluted earnings per share (or EPS) to come in at $2.05–$2.15, an implied growth rate of 10.2%–15.6% year-over-year. The retailer (IYK) expects adverse foreign exchange movements to reduce its EPS by $0.06.

LULU’s EPS is expected to come in at $2.15 in fiscal 2017. This is at the higher end of the company’s guidance, according to consensus Wall Street analyst estimates.

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According to its company guidance, LULU’s fiscal 1Q17 diluted EPS is expected to range between $0.28–$0.30, down from $0.34 in fiscal 1Q16. Consensus Wall Street analyst estimates project adjusted EPS of $0.31 for Lululemon in fiscal 1Q17, slightly higher than the company’s guidance range. LULU’s EPS guidance doesn’t include the impact of potential share repurchases.

Historical share repurchases

In fiscal 2016, Lululemon (LULU) spent ~$271 million on repurchasing 5 million shares at an average cost of $55.27 per share. That’s up from $144 million spent on share buybacks (PKW) in fiscal 2015. The company’s share repurchases have been accretive. LULU’s stock was trading at $67.13 on June 2, 2016.

LULU’s stock price is up by almost 28% since the start of 2016, and it’s up by 9.6% over the past year. Because the company doesn’t pay a dividend yet, its stock price appreciation provides shareholder returns. Growth stocks Under Armour (UA) and Skechers (SKX), which are also up-and-coming players in the athletic gear industry, also don’t pay a dividend.

Share repurchases have also been partly successful in smoothing over short-term variations in earnings per share, while LULU’s growth investments gestate.

LULU, UA, and SKX together constitute 0.39% of the portfolio holdings in the iShares Russell Mid-Cap ETF (IWR). With $12.5 billion in net assets, IWR provides exposure to the US mid-cap sector. This ETF had 821 holdings on June 1, 2016.

In the final part of this series, we’ll analyze LULU’s EPS drivers.

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