lululemon athletica Puts Up Sunshine but No Rainbows

Here we go again.

My expectations coming into lululemon athletica's (Nasdaq: LULU  ) fourth quarter and full-year fiscal 2011 results were a bit tempered. Not in terms of the actual figures that the yoga guru would put up -- I had little doubt that the company would put up a strong quarter, and it did. No, my reservation was that myopic investors would pessimistically focus on where the company could have done phenomenally instead of optimistically looking at where it actually did phenomenally.

Tale of the tape
This morning, shares opened over 3% lower and quickly jumped to flirt with sweet green turf, only to fall back in the red throughout the day as investors faced indigestion trying to swallow the earnings release.

The market was looking for earnings per share of $0.49 on revenue of $362.4 million, which analysts had been ratcheting up to meet lulu's own guidance bump in January to an expected revenue range of $358 million to $363 million and a bottom-line forecast of $0.47 to $0.49 per share. That meant the yoga retailer was going to have to stretch to beat the Street, along with its own guidance.

The yogi did what yogis do best: it stretched.

Fourth-quarter revenue did a tree pose and stood tall at $371.5 million, a 51.3% increase over last year, which made way for earnings per share of $0.51, meaning both the top and bottom lines registered a healthy beat.

Starting with a "B" and having nine zeros
lululemon has just closed out a milestone year, with fiscal 2011 revenue squeezing by the billion-dollar mark. Over the past year, the company cleared a hair over $1 billion in sales, a 40.6% jump over fiscal 2010. The company's press release was even titled, "Company Achieves Cool Revenue Milestone, Starting With a 'B' and Having Nine Zeros."

All of a sudden, lululemon's premium valuation looks a tad bit more reasonable. Yesterday, it was trading at roughly 11.9 times sales, and today's release brings that metric down to about 10.6 as its market cap sits right around $10.6 billion.

Show me the money
Last year, there was some concern that lulu's comparable-store sales were trending down into the low to mid-teens, which would still beat the $98 Astro Pants off rival retailers such as Urban Outfitters (Nasdaq: URBN  ) , which saw comps fall 4% last year. Gap's (NYSE: GPS  ) comps look eerily familiar, with 4% of red ink last year.

lululemon just put up a 26% jump in comps in the fourth quarter and a 20% increase for the year. On top of that, the company hit another record of $2,004 in annual sales per square foot for comparable stores.

RetailSails released a report of other luxury-brand retailers just last month, with Coach (NYSE: COH  ) carrying $1,824 per square foot and Tiffany's (NYSE: TIF  ) figure sparkling at $3,085. At the time, lululemon was trailing with $1,800 per square foot, but the new digits mean it's now topped Coach and trending higher, with its sights set on Tiffany's spot. If it can overtake Tiffany, that would mean that a company that sells $58 Ta Ta Tamer sports bras would be milking its real estate better than one that sells diamonds.

Does this growth make me look fat?
Direct-to-consumer sales jumped by 103.6% in the quarter to $50.1 million and now comprise 13.5% of sales. For the year, the segment increased 85.4% to $106.3 million, but keep in mind that lululemon recently redid its e-commerce division and brought it in-house at the beginning of the fiscal year, while the associated cost savings only started hitting in the second quarter.

Over the past year, lulu has aggressively expanded its global retail footprint from 133 stores to 174 stores, including its first store in New Zealand. Seven stores were added in Australia and three in Canada, while the bulk of the expansion was in the U.S. with 30 new stores.

Why the long face?
That all sounds fine and dandy, so what's all the fickleness about? Remember when I said the company probably needed to "forecast nothing but sunshine and rainbows for the coming quarter" to satisfy shareholders?

Well, the forecast was full of sunshine, but no rainbows. First-quarter 2012 revenue is expected to shine brightly between $265 million and $270 million -- higher than the $257.5 million consensus estimate. It looks as if the bottom-line rainbows will have to wait for a rainy day, as the $0.28 to $0.29 per-share guidance is at most a couple of cents short of the $0.30 that the Street was expecting.

Our old friend, inventory, is back again, with inventory on the books rising 81% to $104.1 million. Some analysts are concerned by this (again), but I think it's the right thing to do to meet surging demand and strong growth (again).

Shares are now starting to recover as investors realize maybe sunshine is good enough. I sure think it is.

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Fool contributor Evan Niu owns shares of lululemon athletica, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of lululemon athletica. Motley Fool newsletter services have recommended buying shares of Coach and lululemon athletica and buying puts on Tiffany. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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