Lululemon Athletica inc. (NASDAQ:LULU) didn’t check all the boxes with its quarterly earnings report, but a hike to revenue guidance and balanced inventory levels do justify more gains for LULU stock.
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Lululemon headed into the earnings report riding a gain of 30% for the year-to-date. Dogged by inventory and margin concerns, the athleisure wear company was a potential fountain of profit-taking if LULU didn’t show the market that it was getting its mojo back.
No, it was by no means a perfect quarter, but when it comes to momentum, nothing is more important than the top line.
And by that measure, Lululemon earnings delivered what investors needed to hear.
LULU Shows Top-Line Strength
Net revenue rose about 17% to $495.5 million in its fiscal first quarter. Analysts on average were looking for revenue of $487.7 million, according to a poll by Thomson Reuters. That’s a comfortable top-line beat.
More importantly, LULU hiked its revenue forecast. That more than made up for a bottom-line miss and contracting margins.
LULU earnings fell 5% to $45.3 million, or 33 cents a share. On an adjusted basis, EPS came to 30 cents, or a penny short of Wall Street’s forecast. Gross margin slipped, but two straight quarters of strong sales growth suggest LULU can leverage its way out of such problems as it pares inventory levels.
Bottom Line
Although the current-quarter forecast was soft, the news wasn’t particularly unexpected. Nike Inc (NKE) and Under Armour (UA) are also coming up against headwinds as the market for athletic apparel continues to cool down. The important part of the story is whether LULU can accelerate top-line growth. So far, so good.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.