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.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Lululemon Athletica. The Motley Fool has a disclosure policy.