What happened

Shares of apparel retailer lululemon athletica (NASDAQ:LULU) jumped on Wednesday after the company reported strong fourth-quarter results. Comparable sales surged, helped by a big increase in direct-to-consumer revenue. The company beat analyst estimates across the board, leading investors to push the stock up about 11% as of 12:45 p.m. EDT.

So what

Lululemon reported fourth-quarter revenue of $928.8 million, up 18% year over year and $17.4 million higher than the average analyst estimate. Total comparable sales rose 12% year over year, driven by a 2% increase in comparable-store sales and a 44% increase in direct-to-consumer net revenue. Gross margin rose 210 basis points year over year, while operating margin jumped 270 basis points.

A woman wearing Lululemon apparel doing yoga in a bright room with large windows

Image source: Lululemon.

Non-GAAP earnings per share came in at $1.33, up from $1.00 in the prior-year period and $0.06 above analyst expectations. Earnings declined on a GAAP basis due to charges related to the U.S. tax reform and other one-time items.

For the full year, comparable sales increased by 7%, with a 1% increase in comparable-store sales and a 27% increase in direct-to-consumer net revenue. Non-GAAP earnings totaled $2.59 per share, up from $2.14 per share in 2016.

Now what

Lululemon expects to produce first-quarter revenue between $612 million and $617 million, driven by a comparable-sales increase in the low double-digits. Non-GAAP EPS is expected between $0.44 and $0.46. For 2018, revenue between $2.985 billion and $3.022 billion is expected, along with comparable-sales growth in the mid-to-high single digits and non-GAAP EPS between $3.00 and $3.08.

While the performance of Lululemon's stores was solid but not spectacular during the fourth quarter, the direct-to-consumer business stole the show. The retailer believes it can reach $4 billion in annual revenue by 2020, a goal that will require that strong growth to continue over the next few years.

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