Yoga-apparel retailer lululemon athletica (LULU -1.26%) has come a long way in the past several years. Though it had developed a reputation as one of the most successful and innovative retailers of the 2000s, it fell into the common trap of taking its quality control too much for granted. But after a long and painful period of customer desertions and corporate difficulties, Lululemon finally started to make a turnaround, and its recent results have shown the company to be back on a more promising trajectory.
Coming into Tuesday's fiscal fourth-quarter report, Lululemon investors wanted to see those positive trends continue. They did: Its performance was strong, which helped build optimism among investors that the retailer can keep making progress in the new fiscal year. Let's look more closely to see what Lululemon achieved, and what's ahead for the company.
Image source: Lululemon Athletica.
Lululemon celebrates the holidays
Lululemon's fiscal fourth-quarter results marked an excellent finish to a promising fiscal year for the yoga retailer. Revenue was higher by 18% to $928.8 million, with the pace of growth once again accelerating from what investors had seen in previous quarters. GAAP net income was down 12% to $119.8 million, but after making allowances for some extraordinary items, adjusted earnings of $1.33 per share were up by a third from year-ago levels and outpaced the consensus forecast among those following the stock.
Tax reform had a short-term negative impact on Lululemon. The retailer took a charge of $59.3 million because of the revaluation of deferred tax assets and liabilities and the deemed repatriation of overseas earnings.
From a fundamental standpoint, Lululemon kept up its momentum. Total comparable sales jumped 12%, accelerating from its pace in the fiscal third quarter, with a huge 44% rise in direct to consumer net revenue. Even in its brick-and-mortar stores, Lululemon showed reasonable performance, with a 2% rise in comparable store sales compared to the year-ago quarter. Foreign currency moves supported Lululemon's numbers, with boosts of one to two percentage points for revenue and comps growth.
Lululemon also improved its internal efficiency. Gross margin soared two percentage points to slightly above 56%, and operating margin of between 27% and 28% was higher by nearly three percentage points. That reflected a 31% jump in adjusted operating income compared to the year-earlier period, as expenses related to the ivivva restructuring started to ramp down.
One promising sign came from Lululemon's return to expansion. The company opened 16 new stores during the quarter, pushing back above the 400 mark throughout its network. The retailer added 70,000 square feet to its total store area, topping 1.26 million square feet.
Executive Chair Glenn Murphy was happy with how Lululemon did. "The company continues to execute successfully on its global growth strategies," Murphy said, and the board chair thanked Lululemon's leadership team in driving strong performance during a time of transition.
Can Lululemon Athletica keep gaining ground?
Lululemon has high hopes for the future. As COO Stuart Haselden put it, "We are seeing strong momentum across our business as we now move into 2018, which is further positioning us to achieve our 2020 revenue goal of $4 billion."
The retailer's guidance suggests that Lululemon hopes to make substantial progress toward that goal during fiscal 2018. During the fiscal first quarter, the yoga retailer projects that it will post revenue of $612 million to $617 million in revenue, with adjusted earnings of $0.44 to $0.46 per share and comparable sales increases in the low double-digit percentages. For the full 2018 fiscal year, Lululemon sees sales of $2.985 billion to $3.022 billion, with mid- to high-single digit percentage increases in comparable sales, and adjusted earnings of $3 to $3.08 per share.
Lululemon investors celebrated the news, and the stock jumped by 6% in after-hours trading following the announcement. With the yoga apparel specialist having seen such a strong holiday season, shareholders seem more convinced than ever that Lululemon has finally been able to chart a new course forward toward an even more successful future.
