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Lululemon (LULU) is one name I've watched from afar the past few years and never taken a part of, mostly due to valuations. It's very similar to Chipotle (CMG). In retrospect, this was a bad decision, as highly-valued stocks can remain so for quarters, if not years.

Based on today's results, there appears to be no recession in the yoga set. Obviously investors the past few weeks thought otherwise, as the stock sold off sharply. Always a bull market somewhere.

[Click to enlarge]

The gross margin levels and expansion for a retailer are very impressive.

Via AP:

  • Net income rose to $33.4 million, or 46 cents per share, for the three months ended May 1 from $19.6 million, or 27 cents per share, a year ago. Excluding a one-time adjustment related to recognizing input tax credits, earnings came to 44 cents per share. That was far higher than the 38 cents per share analysts expected, according to FactSet.
  • Revenue rose 35 percent to $186.8 million from $138.3 million a year ago. Analysts expected $180.1 million.
  • Revenue in stores open at least one year rose 16 percent.
  • The company raised its guidance for the year. It now expects net income of $2.10 to $2.16 per share on revenue of $915 million to $930 million. That's up from prior guidance of net income of $1.90 to $2 per share on revenue of $885 million to $900 million. Analysts expect earnings of $2.04 per share on revenue of $915.2 million.
  • During the recession, many company increased mark downs to clear out excess inventory. But Lululemon, which carved out a niche for itself by selling "yoga-inspired" workout gear, is facing the opposite problem: it is scrambling to increase inventory to keep up with demand. Its inventory at the first quarter was up about 27 percent year-over-year.
  • "This is consistent with management's prior commentary that they would be in inventory `chase' mode for the first half of the year due to its successful Christmas selling season," said RBC Capital Markets analyst Howard Tubin.
  • For the second quarter, it expects net income of 42 cents to 44 cents per share on revenue of $200 million to $205 million. Analysts expect net income of 39 cents per share on revenue of $196.5 million.

Via Barron's:

  • The stock had been down 12% in the two weeks before earnings.
  • Gross margins grew to 58.7% from 53.8% in the previous year.
  • “Another beat and raise — not the magnitude the Street is accustomed to but solid considering light inventories limited upside,” wrote Weeden & Co. analyst Amy Noblin, who rates the shares at Hold. “The growth opportunities here are unique but we think largely reflected in the valuation with the stock trading at 35 times [next fiscal year's estimated earnings]. We would look for a better entry point and would have hoped for more on the recent pullback in the group.”

Disclosure: No positions.

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Source: Lululemon Proves Yoga Is Recession-Proof