Shares of lululemon (LULU 169.96, +23.16, +15.78%) have surged to an
all-time high after the company reported blowout fourth quarter results and
issued upside earnings and comparable store sales guidance for the first
quarter and fiscal 2020.
Fourth quarter results came modestly above Wall Street's estimates, but that sort of masks the strength in the quarter. The company raised fourth quarter guidance back in January following a strong holiday showing.
Comparable store sales grew a whopping 17% excluding the impact of currency. The company raised comp guidance to mid-to-high teens growth on a constant dollar basis from high-single to low-double digit growth on a constant dollar basis in January. That comes on top of 11% growth in the fourth quarter of last year.
While the core women's business is humming, the athleisure leader continues to do extremely well expanding into the men's category, Europe and Asia. Growth exceeded 70% in Asia and 55% in Europe.
Fourth quarter adjusted EPS grew 39% with gross margins up 110 basis points to over 57%.
Investors are especially excited because the company's outlook indicated the strength will continue this year. Lululemon guided first quarter and fiscal 2020 EPS and comparable store sales above consensus. Total comparable store sales are expected to grow in the low-double digit range in constant dollars in the first quarter and fiscal 2020. Estimates were closer to 8% for both periods. Comparable store sales grew by an unheard of 18% last year, including 7% growth in stores and 45% growth in the direct to consumer digital channel, so the bar is far from low.
The $4.48-4.55/share earnings guidance for the year was just above estimates but the 18% growth outlook seems awfully conservative.
The company even hit its 2020 targets one year early. Management will provide new financial targets at an Analyst Day next month.
With a valuation over $22 bln, the stock trades at ~37x EPS and ~23x EV/EBITDA. The latter is only a slight premium to athletic brands NIKE (NKE) and Under Armor (UAA), while the average for a group of consumer brands is roughly 14x. Once again, it is worth noting lululemon's earnings multiples are based on management's seemingly conservative profit projections. The best of breed valuation is seemingly well-deserved.
Management also announced a new $500 mln share repurchase plan after completing its prior buyback. The company said it will be opportunistic buying back stock, an "efficient and effective way to return excess cash to shareholders."
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