Despite a guarded approach to its 2015 guidance, investors and analysts appear convinced that the turnaround at Lululemon Athletica Inc. is for real and showed their confidence in the company by sending shares up almost 5 percent after the company reported a double-digit improvement in sales and better-than-expected earnings in the fourth quarter.
After seeing sales decelerate following a recall on its sheer Luon pants in 2013 and a now apparently peaceful resolution of its conflict with founder Chip Wilson, the company surprised Wall Street with a revenue gain in last year’s second quarter and has kept the sales gains coming.
Exceeding guidance it raised in January based on strong sales, the Vancouver-based yoga and activewear firm reported net income for the three months ended Feb. 1 of $110.9 million, or 78 cents a diluted share, 5 cents above the consensus estimate of analysts. Year-ago profits were $109.7 million, or 75 cents.
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Revenues rose 15.6 percent, to $602.5 million from $521 million, just above the analysts’ consensus estimate of $602.4 million. Comparable sales were up 6 percent, 8 percent at constant currency, including a 2 percent gain in same-store sales, which rose 5 percent at constant currency. Direct-to-consumer revenues were up 17 percent to $114.5 million, accounting for 19 percent of the total versus 18.8 percent in last year’s quarter.
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Lululemon guided investors to limited expectations for the new year, with anticipated first-quarter revenue of $413 million to $418 million and EPS of 31 to 33 cents, below the $442 million and 39 cents, respectively, previously anticipated by analysts.
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Wall Street appeared to accept the company’s explanation that both inclement weather in the early part of the current quarter and the continuing impact of West Coast port delays necessitated a conservative approach. Investors sent shares up 4.9 percent to $63.97 in Nasdaq trading Thursday.
Although the port delays “proved not to be material in Q4,” said Laurent Potdevin, chief executive officer, “we are now seeing a more meaningful impact.”
In his first conference call since joining Lululemon as chief financial officer after nine years at J. Crew Group, Stuart Haselden estimated that $10 million in sales risk for the fourth quarter would instead negatively affect first-quarter sales.
“We also expect these delays to extend into early Q2,” the cfo said. “We are otherwise seeing that sell-throughs remained strong, and underlying demand for our products is consistent with what we saw over the holiday period.”
Comparable sales are expected to expand at a low-single-digit rate in the first quarter.
While maintaining his “hold” rating on the stock, Jefferies analyst Randal Konik was impressed by the company’s move to positive comps, but noted that the low expectations for first-quarter comps “implies a sequential deceleration in top-line trends and keeps us cautious on calling this is a full recovery for the brand.”
For the full year, Lululemon’s net income fell 14.5 percent to $239 million, or $1.66 a diluted share, while revenues rose 12.9 percent to $1.8 billion.