Lululemon Athletica is scheduled to release its next earnings report on Wednesday before opening bell, and the stock is climbing today, suggesting retail investors might have high hopes. As of this writing, shares were up 3.29% at $50.80 per share.

Lululemon Athletica Earnings Preview: Momentum Builds

Third quarter reporting season has been brutal for retailers. Luxury names like Nordstrom’s wound up in freefall after a massive disappointment, although the markets have been easier on big box retailers like Wal-Mart as their earnings reports have demonstrated that consumers appear to be shifting their spending away from luxury brands.

What to expect in Lululemon Athletica’s earnings report

On average, analysts are expecting Lululemon Athletica to post adjusted earnings of 37 cents per share and revenue of $481.78 million for the third fiscal quarter. MKM Partners Managing Director Roxanne Meyer is slightly ahead of consensus on earnings at 38 cents per share and on revenue at $483.8 million. In last year’s third quarter, the retailer reported adjusted earnings of 42 cents per share and revenue of $419.4 million for the third quarter.

Meyer believes margins will continue to be a key focus of investors for now but that revenue upside will become important in the long term. She has a Buy rating and $69 per share price target on Lululemon. She believes the company will beat earnings estimates over the next few years as a result of margin expansion and strong sales growth.

Lululemon improves store selection

Further, she sees the potential for upside to comparable store sales as the retailer improves the selection in its stores. She added that her recent survey of shoppers suggest that Lululemon Athletica is building momentum. The survey covered 1,000 Lululemon shoppers from the U.S. and Canada over Black Friday week.

The analyst reported that 42% of consumers in the U.S. noticed that the retailer had made changes to its selection of pants, tops and color, an increase from 36% in September. U.S. consumers included 51% of men, an increase from 42% previously, and 40% of women, compared to 35% previously.

She added that the view of U.S. shoppers on Lululemon’s selection was much more favorable this time compared to one or two years ago, with 80% of survey participants saying that it had improved while only 4% said it had gotten worse. The survey found that 69% of shoppers think the retailer’s selection of tops has improved, while 4% say it got worse, and in yoga pants, 79% said it had improved while 6% said it got worse. Both metrics were based on style.

Will Lululemon Athletica beat comparable sales expectations?

Meyer also found that 25% of shoppers are buying more now compared to three to six months ago, an increase from 22% in September. She said the driver was an increase in women’s spend and was attributed to improvements in style, quality and fit. Over the next three months, the survey indicated that 29% of the retailer’s shoppers plan to spend more, while 9% plan to spend less. The male response was especially outsized, according to Meyer, as 37% plan to increase spending.

For the holiday shopping period, 80% of shoppers plan to make purchase, either for themselves or as a gift, an increase from last year’s 67%. Also 39% plan to spend more during the holiday shopping period while 5% plan to spend well. This means Lululemon Athletica looks well-positioned for the fourth quarter.

Lululemon Athletica rebuilds its reputation

The retailer hid a huge snag a few years ago with its selection, but apparently it has managed to rebuild its reputation, at least somewhat. Meyer reports that most consumers view it as either the same or better than other brands in terms of overall merchandise, quality, fit and innovation. She found a 5% uptick in favorability compared to September.

The survey also indicated that 95% of consumers see Lululemon as either just as innovative as or more innovative as other brands. Price to value remained favorable, although there was an uptick in consumers in the U.S. that still think the retailer is worse than other brands.