Q3 revenue for Lululemon (NASDAQ:LULU) was up 10.4% compared to last year even though comparable store sales fell 3% in the quarter. This is an improvement over Q2 in which comparable store sales fell 5%. The biggest driver of growth for Lululemon seems to be from the company's decision to focus more on direct to consumer revenue (this revenue increased by 25%).
Even though the company beat its earnings estimate, earnings still came in lower than the previous year ($0.42 vs. $0.45). Just like with its revenue, this is once again an improvement considering that in Q2 earnings decreased from $0.39 per share to $0.33 per share.
In my original article published at the beginning of the year, I warned that short-term earnings growth for the company would be minimal, but that long-term growth was still a strong possibility.
The company expects its comparable sales to increase in the low single digits for Q4 as it looks to continue seeing quarterly revenue growth that will transition to the bottom line. Lululemon's stock has been performing well lately, increasing by over 35% since its low in June.
Last year the main concern with Lululemon was that demand for its product was declining. The past two quarters show that this is not the case. I feel that the company's low point has passed and believe the stock will continue to post positive revenue growth that will transition to the bottom line in the next few years.
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