Home Business Lululemon Posts Strong Earnings Partially due to Tax Decrease

Lululemon Posts Strong Earnings Partially due to Tax Decrease

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Lululemon Athletica inc. (NASDAQ:LULU) reported excellent results for its second quarter, and boosted its guidance for the year. Lululemon Athletica inc. (NASDAQ:LULU) is a yoga-inspired athletic apparel company for women, men, and female youth, primarily in Canada, the United States, and Australia.

Lululemon Posts Strong Earnings Partially due to Tax Decrease

Profits jumped almost 50 percent, to $57.2 million (39 cents a share) from $38.4 million (26 cents a share) in the year ago period. Excluding items, earnings for the quarter were 31 cents a share, in line with analysts’ expectations.

Revenues were higher by 33 percent, at $282.6 million, up from $212.3 million last year. Counting only stores that were open at least a year, revenues were up a healthy 15 percent. A very strong performance came from direct-to-customer sales, which climbed 91 percent to $35.4 million.

However, gross margin fell during the quarter from 57.5 percent to 55.1 percent, while inventories climbed to $125.4 million from $88.9 million a year earlier.

Lululemon Athletica inc. (NASDAQ:LULU) bumped up its guidance for 2012, saying it hopes to earn an EPS of $1.76 to $1.81, on revenues of $1.35 billion to $1.36 billion, and that’s ahead of analysts’ expectations of $1.63 on $1.35 billion.

The company maintains a reputation for quality, its basis for competition against rivals such as NIKE, Inc. (NYSE:NKE).

NIKE, Inc. (NYSE:NKE) reported a 7.6% decline in net income, for the quarter that ended on the 31st of May, 2012. This decline amounted to a $549 million ($1.17 per share), while NIKE, Inc. (NYSE:NKE) garnered $1.24 per share for the same quarter of fiscal year 2011. On the other hand, stock analysts expected earnings of $1.37 a share. The disappointing results came after higher product costs, as well as rising selling and distribution expenses.

Analysts at Wedbush have rated the stock an Outperform, and given it a 12-month target of $80, up from $75. They say:

“We believe sales trends should provide investors with additional confidence in the company’s ability to deliver solid top-line growth (comps including direct-to-consumers were +23% vs. 15% in-store), and maintain its leading position in the core yoga market, while simultaneously investing in product extensions and innovations.

We believe LULU presents an attractive long-term opportunity, given (1) significant square footage growth with improving new store productivity ($1,150 psf vs. $1,100 prior), (2) meaningful DTC business (grew 91% in Q2 & expected to reach ~15% penetration TY), (3) seeding of international rollout, with early positive reads in London & Australia, (4) new store potential from Ivivva, and (5) the testing and expansion of new products and categories.”

Stifel Nicholas notes that the results are positive but were helped by taxes:

We are encouraged by the strong 2Q comp and finish to the quarter (July strongest month), driven by the U.S. market (+25% comp). We have improved confidence in our above consensus FY12 revenue estimate behind noted productivity strength in new US stores opened, continued strength in DTC, and healthy inventory levels to meet continued demand strength.

This said, we believe the positive reaction in shares is primarily related to the sustainability of a lower tax rate (next year expected to be approx 30%). On our FY13 EPS estimates, the benefit compared to our previously estimated tax rate of 37.0% is $0.24.

Most other analysts had positive things to say about the results.

Shares of the company are currently up 12% on the positive earnings.

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