Why Lululemon Athletica Saw Such Stellar First-Quarter Results

The yoga-inspired athletic apparel retailer Lululemon Athletica’s (LULU) stock is soaring today after the company reported robust first-quarter results and issued upbeat guidance after the market closed yesterday.

The company hit a record high today and traded at $122.21 at 12:03 PM EST, up 16.34% over yesterday’s closing price. The stock had already surged 118% over the past year even before the results.

Lululemon crushed first-quarter top- and bottom-line expectations by a wide margin. Total sales increased 25% year-over-year (23% in constant-currency terms) to $650 million, reflecting a $32 million or 5% surprise. Adjusted earnings per share stood at $0.55 (up 72% year-over-year), 9 cents or 20% more than Wall Street expectations.

Sales comps growth was even more impressive. Total comparable sales soared 20%, driven by a 60% jump in e-commerce comps. Analysts, in comparison, had projected a 12.2% jump in comps.

Lululemon not only drew customers to its websites but also succeeded in attracting them to its brick-and-mortar stores. Store comps increased 8% during the quarter, driven by a mid-single-digit rise in store traffic.

Margins were also healthy. The gross margin improved by 370 basis points to 53.1% of sales, driven by a 120 basis point increase in product margins. The company’s operating margin surged by a massive 740 basis points to 16.1% of sales.

Buoyed by the first-quarter performance, management also raised its full-year 2018 guidance. It now expects total sales in the $3.04 billion–$3.08 billion range, versus the prior outlook of $2.99 billion–$3.02 billion. Adjusted diluted earnings per share are expected to range between $3.10 and $3.18, versus previous guidance of $3.00–$3.08.

Wall Street was quick to update Lululemon Athletica’s price target after the results. A host of investment firms raised their target prices, including:

• Citigroup from $90 to $112
• Morgan Stanley from $85 to $108
• Canaccord Genuity from $85 to $97
• Susquehanna from $97 to $121
• Credit Suisse from $105 to $125