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Why lululemon athletica Inc. Stock Popped 17.4% in December

By Steve Symington - Dec 31, 2017 at 6:48PM

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The yoga apparel leader delivered a stellar quarterly performance, and offered refreshing guidance for the holiday quarter.

What happened

Shares of lululemon athletica (LULU -3.39%) climbed 17.4% in December, according to data from S&P Global Market Intelligence, after the yoga apparel specialist announced strong quarterly results ahead of the crucial holiday season.

More specifically, Lululemon stock popped early in the month after it reported that fiscal third-quarter revenue grew 14% year over year to $619 million, comfortably ahead of the 12% Wall Street was modeling and accelerating from roughly 13% growth in the previous quarter. On the bottom line, that translated to adjusted earnings per share of $0.56, up from $0.47 in the same year-ago period and $0.04 per share above consensus estimates.

Woman striking a yoga pose with lululemon logo visible on her back


So what

Within Lululemon's top line, total comparable-sales growth arrived at a healthy 8%, including modest 2% growth at its retail stores and a 26% increase in direct-to-consumer revenue. Lululemon also announced a new $200 million stock repurchase program following the completion of its previous $100 million authorization, which commenced in December 2016.

"Our teams powerfully delivered robust results across both store and digital channels this quarter, driving a further acceleration in our business," stated Lululemon CEO Laurent Potdevin. "The strength of our Q3 earnings supports our unique position as the global brand defining an active, mindful lifestyle."

What's more, Lululemon increased its full fiscal-year guidance to call for revenue in the range of $2.59 billion to $2.605 billion, up from $2.545 billion to $2.595 billion previously, and adjusted earnings per share of $2.45 to $2.48, up from $2.35 to $2.42 previously.

Now what

Perhaps unsurprisingly, Lululemon enjoyed another boost last week, when analysts at Merrill Lynch increased their price target on the stock by 10% to $89. (Shares sit at just under $79 as of this writing.) To justify their bullishness, the firm cited "busy stores and long register lines" at Lululemon locations in the weeks leading up to Christmas -- and this despite a notable lack of storewide promotions or discounts on popular core items. 

As it stands, barring a financial update from management in the coming weeks, Lululemon investors will need to wait until March for more color on its holiday performance. But given Lululemon's positive momentum going into the season and the aforementioned encouraging store checks, I won't be surprised if investors are able to celebrate more market-beating gains in the months ahead.

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