lululemon athletica (NASDAQ: LULU) didn't miss a beat in its third-quarter earnings report. The strong growth continued with a 37% increase in the top line to $316 million, and an 18% jump in same-stores on a constant-dollar basis. Operating income grew by 35%, and diluted EPS jumped 44% to $0.39, up from $0.27 a year ago.
Investors applauded the news, sending shares up 7% on Thursday, but there were some doubts as guidance was again lower than some had hoped. CEO Christine Day said the quarter had started slower than expected, and the company now sees comparable sales growth in just the high single digits, revenues of $475 million to $480 million, and EPS at $0.71 to $0.73 for the holiday period. That guidance is below analyst estimates, but we've seen this kind of lowballing from Lululemon before.
Just last quarter, the company said it expected EPS of $0.34 to $0.36 and revenues of $300 million in the third quarter, but topped those predictions by 10% and 5%, respectively. Even with the slow start, the peak holiday shopping season is still ahead, which should help make up for lost ground.
Other highlights included:
- 89% increase in direct-to-consumer revenue to $45 million or 14% of total sales.
- 12 new stores opened in the quarter, including one ivivva location in Canada and three stores in Australia, and stores in new U.S. markets such as Omaha, Neb., Memphis, Tenn., and Baltimore. Total store count is now up to 201.
- Specific websites launched for European and Asian markets.
On the call, Day also said the company would open its first store in Hong Kong and add another showroom, and said the company plans to open showrooms in more than 15 countries in Europe and Asia over the next two years. Day also remarked on some community events during the quarter, including at the Riverside Church in New York and on the rooftop of the Peabody Hotel in Memphis, that helped reinforce the strength of the brand. As evidence of the community engagement in the brand, Day pointed out that the number of yoga studios in Columbus, Ohio, has gone from one to 15 during the three years since Lululemon opened a showroom there. The company now has two stores in Columbus.
Aside from the slow start to the fourth quarter, which many other businesses have seen, the company is firing on all cylinders. New store openings are moving briskly ahead, with the store base growing by 6% in the quarter, same-store sales are still going through the roof, and the international expansion is progressing nicely.
For a company with Lululemon's valuation, a surprise drop in growth is going to be the biggest threat for investors. If the retailer continues to put up growth numbers like these, shares can only move higher.
