The Street Still Doesn't Bend to lululemon

It's hard to find a hotter bricks-and-mortar retailer than lululemon athletica (Nasdaq: LULU  ) .

The upscale yoga gear specialist is hitting a new high today -- with its stock trading as much as 20% higher -- after delivering another blowout report.

Net revenue rose 56% to $175.8 million during the fiscal third quarter, fueled by a 29% spike in same-store sales on a constant-dollar basis. Earnings were up 84%, to $0.36 a share, as net margins expanded despite a considerable increase in the company's tax rate.

Once again, analysts were nowhere close to assessing lululemon's financial performance. Wall Street was banking on a profit of only $0.25 a share on a 41% top-line boost. You would think the pros would catch on after sorely missing over the past year.

Quarter

EPS

Estimate

Difference

Q4 2009 $0.40 $0.29 38%
Q1 2010 $0.27 $0.21 29%
Q2 2010 $0.30 $0.24 25%
Q3 2010 $0.36 $0.25 44%

Source: Thomson Reuters.

Shoppers have flocked to the chain despite its expensive fitness apparel. This bodes well for luxury retailers. High-end jeweler Tiffany (NYSE: TIF  ) boosted its guidance last month on the strength of new openings and initial success with its foray into designer handbags last week. Coach (NYSE: COH  ) is comfortable enough with its future that it doubled its dividend earlier this year.

It's not all perfect in the luxury niche. Designer denim has been a poor fit, with True Religion (Nasdaq: TRLG  ) missing Wall Street's profit targets in each of the two previous quarters and Joe's Jeans (Nasdaq: JOEZ  ) trading for less than half of its 52-week high.

Selling marked-up wares isn't the key. Selling marked-up wares that consumers want to buy is the key.

The holidays promise to be even merrier for lululemon. Management gave guidance of $0.46 to $0.48 a share for the fourth quarter -- on $210 million to $215 million in net revenue.

Once again, analysts will need to work their numbers higher. They were eyeing a profit of $0.41 a share on $201.2 million in net revenue during the quarter. If history is any kind of teacher, Wall Street won't come up high enough.

Another blowout quarter in three months? That's about the only scenario that fits.

Do you know a hotter retailer? Prove it! Top lululemon in the comments box below.

Coach is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Coach. 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.

Longtime Fool contributor Rick Munarriz doesn't think he's cut out for yoga, given his inabilities to relax and focus. He even lacks the patience for yoga through Wii Fit. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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