Lululemon Stock Jumps Nearly 10% on Earnings Beat and Super-Fit Guidance

After the market close on Tuesday, Lululemon Athletica (LULU 1.16%) reported robust results for its fourth quarter of fiscal 2021 (which ended Jan. 30, 2022). Investors cheered the athletic apparel retailer's report, driving shares up 9.6% on Wednesday.

This positive reaction can be attributed to fiscal fourth-quarter earnings coming in higher than Wall Street had expected, as well as guidance for both the first quarter and full year of fiscal 2022 beating the analyst consensus estimates on both the top and bottom lines. The other key component of the report -- fourth-quarter revenue -- was in line with the Street's projection.

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Lululemon's key quarterly numbers

Data source: Lululemon Athletica. GAAP = generally accepted accounting principles. Fiscal Q4 2021 ended on Jan. 30, 2022. 

Investors should focus on the adjusted numbers. These exclude one-time items.

The quarter's revenue growth was driven by a 32% year-over-year jump in company-operated same-store sales and a 17% rise in direct-to-consumer (DTC) revenue. DTC sales accounted for 49% of total sales in the quarter, compared to 52% in the year-ago period. Lululemon opened 22 net new company-operated stores during the quarter, ending the period with 574 stores. 

The quarter's year-over-year revenue growth was strong across regions, with 21% and 35% increases in North America and internationally, respectively. 

For the fourth quarter, Wall Street was looking for adjusted EPS of $3.28 on revenue of $2.13 billion. So Lululemon hit the top-line estimate on the bull's-eye and exceeded the bottom-line expectation. The company also beat its own earnings guidance, which was for adjusted EPS near the low end of the range from $3.25 to $3.32. And revenue was in line with its guidance, which was near the low end of the range from $2.125 billion to $2.165 billion. 

For the fiscal year 2021, Lululemon generated cash from operations of $1.39 billion, up 73% from fiscal 2020. It ended the period with $1.26 billion in cash and cash equivalents, up from $1.15 billion at the end of last fiscal year. 

Mirror

On the earnings call, CEO Calvin McDonald said that "Mirror performed in line with our revised expectations, and for the year, both revenue and dilution were consistent with the guidance we provided."

I covered the revised expectations in my earnings preview:

Last quarter, management lowered its full-year revenue guidance for Mirror to a range of $125 million to $130 million. The initial outlook, set in early 2021, was for annual revenue of $250 million to $275 million. Management also reiterated its prior outlook that its home connected-fitness business will dilute full-year adjusted EPS by just 3% to 5%. 

Chief financial officer Meghan Frank added, "Looking at 2022, we expect Mirror will generate revenue in excess of 2021 and dilution will improve." She also said that management will share more information about its plans for Mirror at the company's Analyst Day on April 20.

Guidance for first-quarter and full-year fiscal 2022

For fiscal first-quarter 2022 (essentially the February-to-April period), management guided for revenue of $1.525 billion to $1.550 billion, representing growth of 24% to 26% year over year. It also expects the quarter's adjusted EPS to be $1.38 to $1.43, representing growth of 19% to 23% year over year.

Going into the release, Wall Street had been modeling for first-quarter adjusted EPS of $1.29 on revenue of $1.41 billion. So the company's outlook sped by both expectations.

For fiscal year 2022, management projects revenue of $7.49 billion to $7.615 billion, representing annual growth of 20% to 22%. It also expects adjusted EPS of $9.15 to $9.35, representing annual growth of 17% to 20%.

Going into the report, the Street was looking for fiscal 2022 adjusted EPS of $9.06 on revenue of $7.3 billion. So the company's guidance easily exceeded both estimates.

A long runway for growth

Lululemon topped off a stellar year with a great quarter. Management did an excellent job at executing despite the pandemic-driven global supply chain issues that have been affecting the retailing industry. 

Lululemon remains a stock worth considering. Reiterating what I wrote after the third quarter's report: "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."

On that last note, on March 22, Lululemon entered the footwear category. Its first shoe, the Blissful running shoe for women, is available online and in select stores across North America, Mainland China, and the United Kingdom.