Earnings season is slowing down a bit, but there are still some big companies to watch this week. Two big names in apparel and food/hospitality are on the docket. lululemon athletica (LULU 1.49%) gets to set the tone for the rest of fiscal 2020 and hopefully give us insight into what's going to happen going into fall. And Dave & Buster's (PLAY 1.12%) investors are looking to see just how bad the damage from the COVID-19 pandemic is.
Titan of athleisure
Of all the athletic/athleisure apparel companies, Lululemon has been a gem. In its last two fiscal years, the company reported revenue growth of 21% and 24%. Comp sales grew a whopping 17% for the fiscal year that ended on Feb. 2, with gross profit jumping 22% to $2.2 billion. With gross margin of 55.9% last year, this is simply a well-run business.
The caveat, as I have pointed out in the past, is the premium demanded for shares. Going off of last year's earnings of $4.93 per diluted share, Lululemon stock carries a trailing P/E ratio of 73 times earnings. That's not a cheap stock price.
Lululemon's fiscal first quarter ended on May 3. During that time frame, net revenue fell 17% year over year, while direct-to-consumer revenue jumped 68%. Lululemon's shift to the online channel is apparent, as direct-to-consumer accounted for 54% of the company's Q1 revenue, compared to just 27% a year earlier.
Diluted earnings were $0.22 per share versus $0.74 per share a year ago. The performance was pretty respectable when you consider that Nike reported a loss of $790 million for its fiscal fourth quarter, which ended on May 31, 2020.
Looking to the second quarter results coming out this week, analysts are calling for Lululemon to report earnings of $0.55 per share. While that's still lower compared to last year's $0.96 per share, Lululemon seems poised to remain profitable in a year when many are most certainly not.
The company reports on Sept. 8.
Arcades and beer
Dave & Buster's had been struggling to create value from its top-line growth prior to the pandemic. While revenue has continued to grow, the sales gains have been driven by opening more restaurants, rather than comp sales increases. Because of this, the cost associated with that revenue has increased, decreasing the potential for earnings.
Share buybacks compensated for falling net income in fiscal 2018 and fiscal 2019. Dave & Buster's total number of shares outstanding declined by 19.9% through those two fiscal years. This allowed diluted earnings per share to remain stable at $2.93 and $2.94, respectively.
In the third fiscal quarter of the company's fiscal 2019, which ended in November (before the pandemic), comparable-store sales decreased 4.1%. For the full fiscal year, comp sales declined by 2.6%, while total revenue increased 7.1% to $1.36 billion.
The trend made Dave & Buster's a rather unappealing investment prior to this year. The financial pain inflicted in 2020 only furthers the problem. COVID-19 decimated the company's fiscal first-quarter results and set a solemn tone for the second-quarter results coming out this week. First-quarter comp-store sales fell 58.6%, and the company lost $1.37 per share.
Analysts are calling for losses of $1.39 per share for the second quarter and around $3.50 per share for the full year. 2020 will be a bad year for most restaurant chains. What will truly define Dave & Buster's is whether or not it can revive the comp-sales story once things stabilize.
Dave & Buster's reports on Sept. 10.