Lululemon Athletica (NASDAQ:LULU) reported powerful results for its second quarter of fiscal 2021 (which ended Aug. 1) after the market close on Wednesday.

Shares of the athletic wear and athleisure wear retailer were up 11.8% at 11:58 a.m. EDT on Thursday. The market's reaction is attributable to revenue and earnings sprinting past Wall Street's consensus estimates, third-quarter guidance coming in higher on both the top and bottom lines than analysts had been expecting, and management solidly increasing its full-year guidance for both revenue and earnings. 

Blond-haired woman in black yoga apparel doing yoga in front of an inground pool with mountains in background.

Image source: Getty Images.

Lululemon's key numbers 

Metric

Fiscal Q2 2021

Fiscal Q2 2020

Gain

Revenue 

$1.45 billion $902.9 million 61%

GAAP operating income

$291 million  $124.4 million 134%

Adjusted operating income

$299.2 million $135.9 million 120%

GAAP net income

$208.1 million $86.8 million 140%

Adjusted net income

$215.8 million $96.3 million 124%

GAAP earnings per share 

$1.59 $0.66 141%

Adjusted EPS

$1.65 $0.74 123%

Data source: Lululemon Athletica. GAAP = generally accepted accounting principles. Fiscal Q2 2021 ended on Aug. 1.

Revenue growth was driven by a 142% year-over-year jump in company-operated stores' revenue to $695.1 million and an 8% increase (4% in constant currency) in direct-to-consumer revenue to $597.4 million. Lululemon opened 11 new company-operated stores during the quarter, ending the period with 534 stores.

Given that the year-ago period was hurt by the pandemic, investors should know that revenue increased 64% from the same period two years ago, which equates to a compound annual growth rate of 28%.

Direct-to-consumer sales accounted for 41% of total sales in the fiscal second quarter compared to 61% in the year-ago period. The reason for this big disparity is related to the pandemic. Consumers were more comfortable in the quarter shopping at brick-and-mortar stores than they were in the year-ago period, probably due in large part to some folks being vaccinated. 

Revenue increased 63% year over year in North America and 49% internationally.

Wall Street was looking for adjusted EPS of $1.19 on revenue of $1.33 billion, so Lululemon easily beat on the top line and crushed the bottom-line consensus estimate.

Gross margin was 58.1%, up from 54.2% in the year-ago period.

Cash generated from operations rocketed 732% year over year to $499.8 million. The company ended the quarter with $1.17 billion in cash and cash equivalents, more than double its cash position in the year-ago period.

Mirror

On the earnings call, CEO Calvin McDonald addressed what's going on with Mirror, the maker of a home connected-fitness product that Lululemon acquired last year for $500 million:

We continue to be pleased with the performance of Mirror, and let me highlight several initiatives we have on track for this year. We now have Mirror shop-in-shops in 150 Lululemon stores, and our plans call for 200 shops in time for the holiday season. We will soon introduce Mirror to guests in Canada, where Lululemon has an impressive level of recognition.

We recently opened our second production studio in New York, allowing us to double the number of live classes, and Mirror will launch a new e-commerce site in time for the holiday season this year. We're monitoring how macro factors currently impacting the cost of digital marketing are creating some pressure on customer acquisition costs at Mirror. We're enthusiastic about the opportunities that exist for the business.

Guidance is issued for Q3 and raised for the full year

For the fiscal third quarter, management guided for revenue in the range of $1.40 billion to $1.43 billion, and adjusted EPS of $1.33 to $1.38. At the midpoints, this outlook represents year-over-year revenue and adjusted EPS growth of 27% and 17%, respectively. The guidance on both the top and bottom lines was higher than what Wall Street had been expecting, which was for revenue and adjusted EPS growth of 18% and 14%, respectively.

Like it did in the last quarter, management increased its fiscal 2021 guidance. The raises were sizable on both the top and bottom lines. For the full year, management now expects revenue of $6.19 billion to $6.26 billion, and adjusted EPS of $7.38 to $7.48. Its prior outlook was for revenue of about $5.83 billion to $5.91 billion and adjusted EPS of $6.73 to $6.86.

At the midpoints, the updated fiscal 2021 guidance represents annual revenue and adjusted EPS growth of 41% and 58%, respectively.

A stellar quarter

In short, Lululemon had a stellar quarter. Its results and guidance are even more impressive when you consider that it's "navigating temporary headwinds in our supply chain, which are impacting both top line and gross margin," as CFO Meghan Frank said on the earnings call.

The company continues to have a long runway for profitable growth. Along with it being just the very early days for Mirror, the company plans to begin selling its own brand of athletic shoes in early 2022. 

One big reason to like this growth stock is Lululemon's fat profit margins. Through last quarter, it had the best trailing-12-month profit margin of all 28 apparel retailers listed on finviz.com. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.