lululemon athletica (LULU 5.37%) is coming off of a quarter where it was starting to generate some positive momentum. The majority of its stores were open, albeit at reduced capacity, and it was heading in the right direction. Coronavirus cases are surging, especially in the U.S. where the company has a larger presence, and that can potentially put a dent in the company's return to full strength.
Lululemon's stock price is already up over 60% year to date, making it vulnerable to a pullback if there is more substantial disruption from the pandemic. Here are three important things investors should keep an eye out for when the company reports third-quarter earnings on Dec. 10.
Leggings for work, exercise, and everything else
Shareholders interested in Lululemon will first want to look at the company's overall revenue, which increased by 2% to $903 million in the most recent quarter. As of Aug. 2, the company had reopened 492 out of its 506 locations worldwide. And CEO Calvin McDonald was optimistic about what the second half of 2020 held in store for Lululemon. This is what the leader had to say in a company's press release accompanying its last earnings report:
We're pleased with our overall business results for the second quarter, as lululemon increasingly lives into its Omni potential. As trends around the world are shifting to working and sweating from home with an increased focus on health and wellness, we believe 2020 is likely an inflection point for retail and for lululemon. We are cautiously optimistic with regard to the second half of the year as we continue to navigate the uncertain environment.
However, coronavirus cases have been surging in many parts of the world, which could put the company's sales at its brick-and-mortar stores in jeopardy.
The second thing investors will want to know when they view the company's earnings release is the change in the operating margin. If Lululemon is able to grow revenue, look for its operating profit margin to improve as well. In the previous quarter, the company experienced additional costs in relation to its acquisition of Mirror, which sells a product and a subscription that helps people exercise at home. Even though the company's operating margin will benefit from the one-time nature of acquisition costs, it might be offset by additional marketing of the Mirror product for the holiday season.
Finally, look for management to discuss how the stay-at-home trend is changing the exercising behavior of millions of people. Reducing the friction caused by the need to travel to a gym, people may exercise more often if they develop alternative activities that don't require a gym membership. Moreover, the lasting effects of the coronavirus pandemic may increase the attention people give to their health.
What this could mean for investors
The average analyst expectation is that the company will report revenue of $1.01 billion and earnings per share of $0.86. If the company meets those EPS expectations, it would be a 10.4% decrease from the year before. Conversely, the revenue figure would be a 10% increase from the year prior.
Still, investors interested in this consumer goods stock should stay focused on the long term and understand that in the near term the company will continue to face a challenging operating environment until the pandemic fades away.