Lululemon Q4 Earnings Preview: Expect A Beat, Continued Momentum In 2012

| About: Lululemon Athletica (LULU)

Lululemon (NASDAQ:LULU) expects to report 4Q11 result on March 22nd. The Street expects the company to earn $0.49 per share on $362 million in revenue, and guide $257 million in revenue for 1Q12. For Q4, investors can expect LULU to report earnings at the high-end of the management guidance ($0.47 - $0.49) and comps to rise in the low to mid-twenties, compared to the previously guided low to mid-teens, due to stronger than anticipated holiday sales.

In Q3 Lulu reported

  • Net revenue: $230 million, +31% y/y
  • Comps increased 16% on a constant dollar basis
  • Direct consumer revenue: $23.9 million, which accounts for 10.4% of LULU's total revenue
  • Gross margin: 55.8%, compared to 55.1% in 3Q10
  • EPS: $0.27 per share, +50% y/y

During my channel checks in December, I noticed strong consumer interest in new products such as the scuba hoodies and the lightweight jacket, which were all selling at full price. The decision for LULU to sell products at full price amid intense price competition allows the company to maintain its premium status and brand positioning. This strategy is similar to the one used by Abercrombie (NYSE:ANF) in 2008 when the teen retailer had no markdowns during the holiday.

At the ICR XChange conference in January, management pointed out that innovative products, full-price sales and modest markdowns allowed LULU to maintain its industry leading sales per square foot and strong comps sales. For the upcoming quarter, sale per square foot is expected to be $1,975 compared to $1,726 in 2010. New stores are expected to achieve $1,100 per square foot in sale. Canadian comps is expected to be in the low teens while US and Australian comps are expected to be stronger, bringing the total comps to the mid-twenties.

We can also expect to see strong ramp up in ecommerce. Management indicated that ecommerce is expected to account for 13% of sales this upcoming quarter and 10% for the fiscal year, compared to 10% and 8%, respectively, a year ago. Going forward, management expects 15% growth in the near-term and leverage ecommerce to expand internationally. In Q2 and Q3, the company will launch Hong Kong and UK ecommerce sites and has been promoting its brand in Yoga Journal and Runner's World.

The management also expects to expand its store count in North America to 350 in the future from the current 155.

Finally, inventory build-up should support continued momentum in both comps and productivity in 1Q12.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.