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Lululemon's Earnings Outrun Expectations... and Show Why Its Stock Is a Buy

By Beth McKenna – Updated Dec 13, 2021 at 8:25AM

Key Points

  • Q3 revenue grew 30% year over year, beating Wall Street's expectation of 29% growth.
  • Adjusted EPS was $1.62, sprinting by the $1.41 consensus estimate.
  • The cut to Mirror’s full-year sales outlook was the only notable hiccup in the report.

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The athletic-apparel retailer turned in strong fiscal Q3 results and raised its full-year outlook for both revenue and earnings.

Lululemon Athletica (LULU 0.97%) reported strong results for its third quarter of fiscal 2021 (which ended Oct. 31) after the market close on Thursday.

Shares of the athletic-wear retailer, however, fell 1.8% on Friday. The market's slightly negative reaction can probably be largely attributed to the company lowering its full-year revenue guidance for Mirror, the home-connected fitness business that it acquired in July 2020. It's also possible that some investors might have been a bit disappointed that third-quarter revenue didn't beat Wall Street's revenue estimate by a larger margin.

Lululemon's stock is highly valued, so even relatively small blemishes in its quarterly reports can drive some short-term traders to take some money off the table.

Other than the ratcheting back of Mirror's outlook, Lululemon's report was robust. Third-quarter revenue and earnings surpassed analysts' expectations, and management boosted its full-year outlook for both the top and bottom lines.

Three smiling people in a group exercise setting.

Image source: Getty Images.

Lululemon's key numbers


Fiscal Q3 2021

Fiscal Q3 2020



$1.45 billion

$1.12 billion


GAAP operating income

$257.9 million

$204.9 million


Adjusted operating income

$282.1 million

$213.5 million


GAAP net income

$187.8 million

$143.6 million


Adjusted net income

$211.3 million

$151.3 million


GAAP earnings per share (EPS)




Adjusted EPS





The adjusted numbers for both years exclude certain costs incurred in connection with the company's $500-million acquisition of Mirror.

Revenue growth was driven by a 32% year-over-year jump in company-operated same-store sales and a 23% increase in direct-to-consumer (DTC) revenue. DTC sales accounted for 40% of total sales in the quarter, compared to 43% in the year-ago period. Lululemon opened 18 net new company-operated stores during the quarter, ending the period with 552 stores.

Revenue increased 28% year over year in North America and 40% internationally.

Like other apparel retailers, the company had a relatively easy revenue comparable because the pandemic depressed demand for clothing and accessories in the year-ago period. So investors should know that revenue increased 58% from the same period two years ago, which equates to a two-year compound annual growth rate of 26%.

Wall Street was looking for adjusted EPS of $1.41 on revenue of $1.44 billion, as outlined in my earnings preview. (The revenue estimate was $1.43 billion at that time.) Lululemon slightly beat on the top line and sprinted by the bottom-line estimate. The company also exceeded its own guidance, which was for revenue of $1.40 billion to $1.43 billion and adjusted EPS of $1.33 to $1.38.

Gross margin was 57.2%, up from 56.1% in the year-ago period.

Cash generated from operations skyrocketed 526% year over year to $158.3 million. The company ended the quarter with $993.6 million in cash and cash equivalents, up from $481.6 million in the year-ago period.


On the earnings call, management said that it was lowering its full-year revenue guidance for Mirror to $125 million to $130 million. The company's prior outlook, established in March, was for revenue of $250 million to $275 million in fiscal 2021. For context, Mirror's sales were about $170 million in 2020.

While this guidance cut is sizable, investors shouldn't be concerned. Lululemon is in the early innings of its ownership of Mirror, which accounts for less than 3% of its total revenue. Moreover, the company maintained its estimate that this business will dilute full-year adjusted EPS by just 3% to 5%.

Guidance is issued for Q4 and raised for the full year

For the fiscal fourth quarter, management guided for revenue in the range of $2.125 billion to $2.165 billion and adjusted EPS of $3.25 to $3.32. At the midpoints, this outlook represents year-over-year revenue and adjusted EPS growth of 24% and 27%, respectively. This guidance, at the midpoints, fell a bit short of the Street's expectations, which were for adjusted EPS of $3.30 on revenue of $2.17 billion. It's safe to assume, however, that management is being conservative in its outlook.

Like it did in the last two quarters, management increased its fiscal 2021 guidance. For the full year, it now expects revenue of $6.25 billion to $6.29 billion and adjusted EPS of $7.69 to $7.76. Its prior outlook was for revenue of $6.19 billion to $6.26 billion and adjusted EPS of $7.38 to $7.48. At the midpoints, the updated guidance represents annual revenue and adjusted EPS growth of 43% and 64%, respectively.

A great quarter and long runway for growth

In short, Lululemon had a great third quarter and is "well-positioned for a strong end to [fiscal] 2021," as CFO Meghan Frank said in the earnings release. The company's robust performance is even more impressive in light of the ongoing supply-chain issues that are plaguing its industry.

Lululemon stock remains an attractive buy for long-term investors. The company's core apparel business is firing on all cylinders and has more room for growth, particularly internationally. Moreover, it has additional avenues for growth, including Mirror and athletic shoes. Management confirmed on the earnings call that the company is on track to launch its own brand of athletic shoes in the spring of 2022.

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns and recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

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