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Athletic apparel retailer Lululemon Athletica (NASDAQ: LULU) posted better-than-expected earnings on Wednesday and Lululemon stock bounced 5%.
Lululemon shares are up 7% in the past one year, outperforming the S&P 500 index in the same period. But it has been a turbulent ride for investors over the past year. Lululemon stock fell to $45 back in December before bouncing back.
Investors are feeling better about the company in light of its recent earnings report.
Lululemon’s net profit in the fiscal first quarter fell 5% from the same quarter last year. On a per-share basis, the company earned $0.33, compared to $0.34 per share in the first fiscal quarter of 2015.
Still, revenue of $495.5 million beat analyst expectations, which called for $487.7 million.
Lululemon’s revenue grew 17% year over year, which is a good indicator the company’s turnaround remains on track.
Lululemon has come a long way since the yoga pants recall of 2013 which damaged the company’s brand image with consumers. The issue saddled the company with excess inventory, which it is only now clearing through.
Although inventory rose 21% last quarter from the same period one year ago, Lululemon said that sales growth would outpace inventory growth over the remainder of the year.
The company also had to deal with recent comments by its founder and largest shareholder, Chip Wilson, who criticized Lululemon management for not keeping up with current trends. Wilson added he believed Lululemon was losing ground to rivals.
However, judging by Lululemon’s results, that doesn’t appear to be the case. Lululemon stock rallied after the company unveiled higher-than-expected revenue. The surprising sales growth last quarter was due to excellent results in men’s apparel, women’s bottoms and e-commerce.
Growth Plan Remains Intact
Lululemon reported 8% constant-currency growth in total comparable sales, a metric that includes both in-store sales and online sales. This was an acceleration from the same quarter last year, when the company reported 6% growth in that measure.
As a result, it seems Lululemon is building on its momentum.
One area the company could stand to improve is its position with male consumers. Lululemon has carved out a dominant market position when it comes to women’s apparel, but it has ceded the male market to Nike (NYSE: NKE) and Under Armour (NYSE: UA).
In response, Lululemon has invested significantly in its men’s products and has made further market share gains a strategic priority. This is really paying off; Lululemon grew its men’s category by 21% last quarter, which was the sixth consecutive quarter of at least 15% growth.
It is also a good sign that Lululemon posted double-digit growth in women’s bottoms, suggesting the company’s critical demographic is coming back to the name after the yoga pants fiasco.
E-commerce is also an area of growth that the company plans to expand on moving forward. Last quarter, global online sales jumped 18% year over year.
Stronger 2016 for Lululemon Shares?
The company feels confident about the remainder of the year. Along with the earnings report, Lululemon raised its revenue forecast. It now expects $2.305 billion to $2.345 billion for the full fiscal year, up from previous guidance of $2.285 billion to $2.335 billion.
Lululemon generates a lot of cash. Cash flow from operations rose 90% last quarter. With this cash flow, the company can buy back shares and invest in its future growth opportunities. Lululemon opened 10 net new stores last quarter and continues to build its e-commerce platform.
Lululemon has a strong brand and has successfully restored its brand image with consumers. Its fundamentals are in very good shape and the rest of the year is shaping up very well for the company.
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