Lululemon (LULU) released their Q4 2011 earnings on Thursday, March 22nd, causing the stock to climb to a new all time high of $76.66. This is a 66% increase since December 9, 2011, when I first got behind the stock at $46.16 after the company's Q3 earnings were released (read my article here). The company reported revenue growth of 51.4%, or $371.5m, for the quarter and EPS growth of 34.1%, or $0.51 per share. Lululemon came in $0.02 above the street's EPS expectation, beating estimates on both the top and the bottom line.
Revenue growth during the quarter was driven by a 26% increase in comparable store sales, the completion of 9 new store locations and 103.6% YOY growth in e-commerce sales. The company continues to experience above average growth in comparable store sales and reported an extremely impressive $2,004 in sales per square foot for 2011. These figures put the company's stores in line with other luxury brands, like Coach (COH) and Tiffany (TIF).
During the quarter, the company opened 2 locations in the US, 4 in Australia, 1 in New Zealand and 2 ivivva stores in Canada (a new store concept targeted at a younger clientele). These new openings bring the total up to 174 stores with about 150 of the total in North America. E-commerce is also growing very rapidly - the company reported $50m in e-commerce sales in Q4 2011 verses a total of $57m in e-commerce sales for all of 2010. Internet sales now represent 11% of total sales and management believes that this number will continue to climb to 15% of total sales.
There is one simple reason why Lulu will continue to grow - it is still very small. Management believes that the North American market has the potential for 350 Lululemon stores, more than double the current number. International growth is also a huge opportunity for Lulu and the company has become very effective at identifying new markets. Management stated that e-commerce is "key for developing brand awareness and creating demand in secondary markets. It is also a powerful tool to help inform our strategy as we expand internationally."
The company has plans to open physical showrooms in London and Hong Kong during 2012 and also plans to launch country specific websites to drive e-commerce sales. The CEO, Christine Day, said that the company is very attracted to Germany, Switzerland and Northern Europe but also sees a lot of potential in Latin America and Asia. There is also potential for growth with the ivivva store concept (ivivva markets dance inspired athletic wear to female youths aged 6-12). This business line will expand Lulu's target market to younger athletes and will create brand awareness and loyalty with very young consumers.
Lulu currently trades at a very high P/E ratio in the upper 60's and I think that the stock will continue to trade at a very large premium to the market (Nike (NKE) trades at a P/E of 22 and GAP (GPS) at 16). During the Q4 conference call, management stated that they believe the company will continue to experience growth greater than 30% and that revenue will be in the range of $1.3B - $1.325B for the next fiscal year. I believe this estimate is conservative and I am predicting revenue of $1.4B and diluted EPS of $1.80 for 2012. I give the stock a $100 one year price target based on the assumptions that the company will open 37 stores during 2012, that internet sales will increase to 13% of total sales and that the stock will trade at a P/E in the mid 50's.
Disclosure: I am long LULU.
