It was a mixed holiday season across the apparel retailing industry, but lululemon athletica (NASDAQ:LULU) seems to have found the right marketing and merchandising approaches to carry it through that critical period. Investors are expecting the yoga clothing specialist to announce plenty of good news in its fiscal fourth-quarter earnings report on Tuesday, March 27.
Let's take a closer look at the important trends to know heading into the company's report.
Lululemon entered the holiday quarter with the wind at its back as comparable-store sales rose a healthy 7%. Sure, most of that gain came from booming demand in its digital sales channel, but Lululemon's network of stores performed well, too. Comps sped up to a 2% gain at physical locations, improving upon a 1% uptick in the prior quarter.
The retailer's initial holiday quarter guidance predicted that overall comps would end up rising in the mid-single-digits, with sales coming in between $870 million and $885 million. In early January, though, management boosted that outlook to forecast high single-digit comps and revenue of between $905 million and $915 million. Executives said they were thrilled to see an "accelerating trend across all parts of our business" over the holidays, so investors have every reason to expect good news on this score.
In a fiercely competitive selling period like the holiday season, many retailers end up sacrificing profitability to protect their market share. Under Armour, for example, saw its gross profit margin fall by 1.5 percentage points to 43% of sales in the fourth quarter as it cut prices on slow-moving inventory.
Lululemon likely wasn't pushed into that sort of defensive position, though. After all, gross profit margin improved by more than a full percentage point in the prior quarter, rising to 52% of sales. That result suggests the retailer felt little pressure to ramp up its promotions to keep customer traffic humming along.
The retailer's latest forecast calls for earnings of $1.25 per share at the midpoint of guidance, which would amount to a solid 25% boost over the prior year's result. Profitability should also improve modestly from the 50% rate Lululemon managed a year ago. Keep in mind that the reported profit figure will be different because management's earnings projection came before the recent tax law changes were enacted.
A new leader
Lululemon's fourth-quarter report usually includes management's first detailed outlook for the new fiscal year. Back in late March of 2017, for example, executives projected a slight growth slowdown in fiscal 2017 that the company went on to outperform by a healthy margin. Similarly, investors will be eager to learn whether lululemon believes it can improve on, or at least maintain, the high-single-digit comps pace it likely managed for fiscal 2017.
This week's report is even more important because it will be the first one since CEO Laurent Potdevin abruptly stepped down after the company determined he had violated Lululemon's standards of conduct. Executives will likely issue an update on their search for a new chief executive to see the company through its long-term plan of achieving $4 billion in annual sales by 2020, up from an expected $2.6 billion in the year that just ended.
Demitrios Kalogeropoulos owns shares of Under Armour (A and C shares). The Motley Fool owns shares of and recommends Under Armour (A and C shares). The Motley Fool recommends Lululemon Athletica. The Motley Fool has a disclosure policy.