Lululemon (LULU) Stock Pops On 2nd Quarter Earnings Guidance Beat

Shares of Lululemon (LULU) are stretching higher in the pre-market session Friday, climbing almost 6%, after the yoga apparel maker on Thursday reported better-than-expected second quarter earnings results and issued third quarter guidance that was above Wall Street’s forecast.

It would seem the new growth initiatives aimed at boosting online sales and operational improvements to grow margins — two areas of focus under new CEO Laurent Potdevin — has begun to pay off.

In the three months that ended July, the Vancouver-based company reported fiscal second-quarter profit of $48.7 million, or 36 cents per share. On an adjusted basis, when taking out one-time gains and costs, earnings came to 39 cents per share, which topped consensus estimates of 35 cents. The athletic apparel maker delivered second quarter revenue of $581.1 million, which marked a 13% year-over-year jump and above analysts forecasts by more than $13 million.

"Our performance in Q2 and the solid momentum we are seeing in early Q3 gives me great confidence in our strategy and long-term plan," said Potdevin in a statement.

The strong revenue beat was driven by better-than-expected performance in the company’s online business, where revenue surged 30% year over year. Perhaps more impressive was that LULU’s same-store-sales rose 7% year over year, topping the 4% growth analysts were looking for.

Lululemon’s ability to survive in a retail era dominated by e-commerce giant Amazon (AMZN) has been a major question mark. This is on top of concern that LULU’s profit margins were being pressured by increased competition from the likes of Nike (NKE) and Under Armour (UA), which have encroached on LULU’s yoga’s territory.

In recent months, various athletic rivals, including Nike have partnered with Amazon to boost sales. But with 30% jump in the online business, there’s evidence that LULU’s efforts to beef up its e-commerce strategy may not need Amazon. And, in the process, the company can retain its premium brand. And LULU’s guidance suggest that it’s premium pricing, or profit margins, will suffer no weaknesses.

For the current quarter ending in November, Lululemon expects its per-share earnings to range from 50 cents to 52 cents, while it expects revenue in the range of $605 million to $615 million. Both measures are above Street forecast of 51 cents per share on revenue of $608.8 million. For the full year, LULU sees earnings in the range of $2.35 to $2.42 per share, while revenue ranging from $2.55 billion to $2.6 billion — both above Street views.

And with LULU stock still down more than 11% since the start of the year, bargain hunters can find value here, especially with shares losing some 25% of their value in the past year. The fact that full-year profits are expected to grow faster than revenue underscores the attention the management has made on expanding LULU’s profit margins. As such, now’s the time to bet on LULU’s ability to get off the mat.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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