Can lululemon athletica Stretch to Beat the Street?

Buckle up, lululemon athletica (Nasdaq: LULU  ) shareholders, since you're likely in for a workout tomorrow morning.

The high-flying yoga guru is set to report fourth-quarter and fiscal 2011 earnings results bright and early. About two months ago, the company announced that it was raising its revenue guidance to a higher range of $358 million to $363 million, a healthy bump from the prior range of $327 million to $332 million.

The bottom line is expected to be $0.47 to $0.49 per share, and CEO Christine Day specifically thanked Lululemon's inventory buildup for helping it meet surging demand over the holidays. The company also importantly forecasts comparable-store sales to jump back above the 20% threshold, after comps had started to trend down.

In the meantime, analysts have been boosting their own estimates to match Lululemon's forecast and now expect earnings per share of $0.49 on sales of $362.4 million. Compare those consensus estimates to the $0.42 per share profit and $333.7 million in sales that analysts were expecting before the guidance boost. This means Lululemon will have to stretch a little bit to beat its own guidance, as well as the Street's.

The midpoint of Lululemon's revenue forecast would represent 47% growth compared to the fourth quarter of 2010, which helps justify its lofty valuation. Shares now trade at 64 times earnings and 11.9 times sales, which is pricier than fit rival Under Armour (NYSE: UA  ) , which sports respective multiples of 52.3 times earnings and 3.3 times sales.

However, Lulu's stronger growth and profitability make it worth every penny in my mind -- I own shares, after all. Over the past five years, Lululemon has averaged more than 53% growth with a 13.5% net margin compared to Under Armour's 27.9% and 6.4%, respectively. I'm expecting more of the same from Lulu tomorrow morning.

Another thing to remember is that when it comes to volatile growth stocks that trade at lofty multiples, just beating the Street isn't always enough. Sometimes, they have to beat on the current quarter and forecast nothing but sunshine and rainbows for the coming quarter, lest their growth prospects get called into question and lead to a painful sell-off and resulting multiple compression.

Either way, I won't be too worried. Lululemon is poised to be a long-term winner.

I discovered Lululemon through our Rule Breaker's premium service, and it's already delivered two-bagger returns. There's plenty of opportunities out there, and if you want to discover the next rule-breaking multibagger, then we have just the special free report for you. In it, you'll find the name of another company that I've personally bought recently and I'm also fully expecting multibagger returns from it, as it has all six signs of a Rule Breaker. Get the free report now.

Fool contributor Evan Niu owns shares of lululemon athletica, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of lululemon athletica and Under Armour. Motley Fool newsletter services have recommended buying shares of Under Armour and lululemon athletica. 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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