Investors have pushed shares of lululemon athletica (NASDAQ:LULU) up by more than 60% so far in 2020 as we approach the retailer's second-quarter earnings announcement. While much of its industry is still reeling from coronavirus closures, the yoga-inspired apparel specialist demonstrated resilience in June by easily shifting most of its business online.

We'll find out in a few days whether that encouraging market share growth continued into the second quarter, which runs from May through early July. Investors have similarly pressing questions about Lululemon's inventory and finances heading into the key holiday shopping season.

Let's look at a few metrics to watch in the report, set for Tuesday, Sept. 8.

A woman holds a yoga pose.

Image source: Getty Images.

Moderating losses

Lululemon outperformed the industry in the fiscal first quarter, with sales dipping just 17% while other apparel giants were seeing 50% declines during pandemic shutdowns. Nike reported a 38% sales drop in its comparable period.

The athleisure specialist got a big assist in the early days of the pandemic from its customers seamlessly moving to the online ordering channel, which accounted for over half of the business in the first quarter. More success here is expected to lift results again in Q2. Most investors who follow the stock are predicting sales declines will moderate again, to about 6%, implying a return to sales growth perhaps late in the quarter.

Gross profit margin

The last few months have created lots of new financial challenges for apparel retailers thanks to volatile consumer shopping habits. Investors saw these issues lead to large inventory writedown charges at Walmart and a sharp drop in gross profit margin at Foot Locker.

The selling environment is making it hard for companies to adjust to shifting spending priorities in the context of stressed supply chains. TJX Companies, for example, recently said major supply issues slowed growth late in its fiscal second quarter.

LULU Gross Profit Margin Chart

LULU Gross Profit Margin data by YCharts.

Lululemon avoided these problems in Q1, mainly thanks to its steady sales volume flow and the fact that its merchandise isn't especially seasonal. Those assets will be put to another test this week, with positive results showing up in the chain's gross and operating profit margins.

Inventory and outlook

The biggest potential red flag in last quarter's results was a 41% increase in inventory. But executives said at the time that the elevated holdings weren't a big financial risk. This week's report will reveal whether that prediction held true, although investors are expecting another significant inventory boost in Q2.

Wall Street will be focused on Lululemon's expectations for the second half of fiscal 2020. Sure, the retailer isn't likely to issue a detailed operating forecast on Tuesday due to the uncertainties around the recession and the path of the pandemic. But Lululemon's early Q3 demand trends and inventory quality will determine whether it can proceed with an aggressive second-half plan that includes several new product launches and stepped-up marketing spending.

CEO Calvin McDonald and his team should have some market share wins to highlight as the retailer returns to growth in several markets, and perhaps on a global basis by late in the quarter. Their optimism about the prospects for maintaining that momentum will be a key factor in determining whether the stock moves up or down after Tuesday's report.

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