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lululemon athletica Turns Up the Heat

lululemon athletica's (Nasdaq: LULU  ) improved fourth-quarter guidance should have investors feeling at peace again. With its P/E multiple now over 50, shareholders have come to expect roses every quarter from the yoga clothier.

The company raised expectations for diluted EPS from a range of $0.40 to $0.42 to between $0.47 and $0.49, about a 17% hike. Revenue guidance also moved up almost 10% from about $330 million to around $360 million. The increased revenue represents a nearly 47% growth over last year's fourth-quarter total of $245 million. Even better, management projected same-store sales to move up by a low-to-mid 20s percentage, above previous expectations. Declining same-store sales had concerned investors earlier.

Great expectations
The improved guidance is welcome news for the apparel seller after it stirred controversy with its "Who is John Galt?" shopping bags earlier in the quarter, and the founder, Dennis Wilson, announced his departure as the chief innovation and branding officer and sold over $12 million in shares. Wilson will remain as chairman of the board.

Investors seemed unfazed by Wilson's move, as the stock did not react to the news. CEO Christine Day has been at the helm since 2008, overseeing dramatic growth during her tenure.

Recently, Lululemon's stock has risen almost 50% from the $41.70 price on Dec. 1, when the company reported that third-quarter revenue missed expectations by about 2%. Day had blamed the sales miss on inventory problems, which prevented stores from meeting sales demand, but she promised a strong fourth quarter with the right product mix -- and sure enough, she delivered. Day credited the higher fourth-quarter sales to the company's improved inventory, saying, "Our work throughout the year building our inventory position is driving our success in the fourth quarter," and added that momentum would continue into the spring. It's reassuring to see a CEO pinpoint a problem and solve it in the next quarter, as advertised.

One of these things is not like the others
The apparel retailer's success comes at a time when other familiar clothing chains are struggling. Urban Outfitters (Nasdaq: URBN  ) shares dropped 15% in after-hours trading Tuesday as its CEO abruptly resigned, and American Eagle Outfitters (NYSE: AEO  ) reupped its membership in the struggling retailer club last week when diminished earnings guidance sent its share price down over 10%. Aeropostale (NYSE: ARO  ) lost nearly 40% of its share value in the last year. Finally, Gap (NYSE: GPS  ) , parent of Lululemon competitor Athleta, recently reported that December 2011 sales had dropped by 1% and comparable sales were down 4% over the previous year.

Foolish takeaway
With stellar comps, a 71% growth rate in online sales in the third quarter, and a number of new stores to come -- they added 18 in Q3 alone -- investors can bet that Lululemon will live up to that high multiple.

The yoga clothing chain has been a recommendation of our Rule Breakers newsletter for over a year now, and they've got a line on another stock they think is poised for big returns. Check out their brand-new free report, "Discover the Next Rule-Breaking Multibagger," to find out what this hot stock is and why our experts are sold. You can access it by clicking right here.

Fool contributor Jeremy Bowman holds no positions in the above companies. The Motley Fool owns shares of Lululemon, Gap, and Aeropostale. Motley Fool newsletter services have recommended buying shares of Lululemon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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10/21/2016 4:00 PM
LULU $57.00 Down -0.77 -1.33%
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AEO $17.66 Up +0.16 +0.91%
American Eagle Out… CAPS Rating: ****
AROPQ $0.04 Up +0.00 +2.99%
Aeropostale CAPS Rating: *
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