lululemon (LULU) to Report Q3 Earnings: Is a Beat in Store?

lululemon athletica inc. LULU is likely to witness top and bottom-line growth when it reports third-quarter fiscal 2021 results on Dec 9, after market close. The Zacks Consensus Estimate for fiscal third-quarter sales is pegged at $1.43 billion, indicating a 28.1% increase from the prior-year quarter's reported figure.

The Zacks Consensus Estimate for the company's fiscal third-quarter earnings stands at $1.39, suggesting a 19.8% rise from $1.16 reported in the year-ago quarter. Earnings estimates have moved up by a penny in the past 30 days.

The company delivered an earnings surprise of 25.2% in the last reported quarter. LULU's bottom line beat estimates by 36.4%, on average, in the trailing four quarters.

lululemon athletica inc. Price and EPS Surprise

lululemon athletica inc. Price and EPS Surprise

lululemon athletica inc. price-eps-surprise | lululemon athletica inc. Quote

Key Factors to Note

lululemon's quarterly performances have been benefiting from a positive response for its products, improved store productivity and continued digital momentum. Strength across all categories, channels and geographies has been aiding results. A rebound in brick-and-mortar sales, driven by an increase in store traffic as consumers return to stores for shopping, as well as continued expansion in the e-commerce channel have been the drivers. The factors are expected to have aided the company's top and bottom lines in the to-be-reported quarter.

On the last reported quarter's earnings call, management noted that its strong business momentum continued in the second half of fiscal 2021. For third-quarter fiscal 2021, the company predicted net sales of $1.4-$1.43 billion, indicating two-year CAGR growth of 24-25%. Adjusted earnings are anticipated to be $1.33-$1.38 per share, whereas LULU reported $1.16 in the prior-year quarter and 96 cents in third-quarter fiscal 2019.

Continued investments to enhance the in-store experience are likely to have bolstered sales and earnings in the fiscal third quarter. lululemon is leveraging its stores to facilitate omni-channel capabilities, including the buy online pickup in store and ship-from-store. It has implemented several strategies to improve the guest experience and reduce wait time, including virtual waitlist, mobile POS and appointment shopping. The functionalities have enabled reducing the time of waiting in line to enter stores as well as allowing customers to complete some transactions like returns, exchanges and purchase of gift cards without entering stores.

Management anticipates gross margin expansion of 50-100 bps for the fiscal third quarter from that reported in third-quarter fiscal 2019. Gross margin growth from the fiscal 2019 comparable period can be attributed to higher e-commerce penetration, and occupancy and depreciation cost leverage.

The company's fiscal third-quarter gross margin is likely to have reflected continued gains from leverage in occupancy, product team costs and depreciation. On the last reported quarter's earnings call, management expected third-quarter fiscal 2021 gross margin to expand 50-100 bps from that reported in third-quarter fiscal 2019. Gross margin growth from the fiscal 2019 comparable period can be attributed to higher e-commerce penetration, and occupancy and depreciation cost leverage.

However, industry-wide supply-chain challenges, stemming from the pandemic-led factory closures, congestion at ports and reduced airfreight capacity, remain concerning. On the last reported quarter's earnings call, management expected supply-chain challenges, driven by the pandemic-led factory closures, congestion at ports and reduced airfreight capacity, to impact its business in the second half of fiscal 2021. The company's gross margin guidance for third-quarter fiscal 2021 includes a 200-bps impact of higher airfreight costs, owing to port congestion and capacity constraints.

lululemon is also facing SG&A deleverage on a two-year basis, which is likely to have continued in the fiscal third quarter. The company expected SG&A expenses for the third quarter of fiscal 2021 to deleverage 300-350 bps from the pre-pandemic levels. The deleverage mainly relates to higher depreciation due to accelerated investments to support the e-commerce business in 2020 and 2021, consolidation of MIRROR's results this year, and increased investments in brand-building for its growth initiative.

What the Zacks Model Unveils

Our proven model conclusively predicts an earnings beat for lululemon this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

lululemon has a Zacks Rank #2 and an Earnings ESP of +1.44%.

Other Stocks Likely to Beat Earnings Estimates

Here are some other companies that you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat.

Costco Wholesale COST currently has an Earnings ESP of +0.88% and a Zacks Rank of 3. The company is expected to register top and bottom-line growth when it reports first-quarter fiscal 2022 numbers. The Zacks Consensus Estimate for COST's quarterly revenues is pegged at $49.6 billion, which suggests growth of 14.8% from the prior-year quarter's reported figure.

You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Costco's quarterly earnings moved up 2% in the last 30 days to $2.59 per share, suggesting 13.1% growth from the year-ago reported number. COST has delivered an earnings beat of 7.7%, on average, in the trailing four quarters.

Vail Resorts MTN currently has an Earnings ESP of +5.46% and a Zacks Rank #3. MTN is anticipated to register top-line growth when it reports third-quarter fiscal 2021 results. The Zacks Consensus Estimate for the quarterly revenues is pegged at $195.1 million, indicating an improvement of 48.1% from the figure reported in the prior-year quarter.

The Zacks Consensus Estimate for Vail Resorts' bottom line has improved significantly in the past 30 days to a loss of $3.66 per share. However, the consensus estimate suggests wider loss per share compared with $3.63 reported in the year-ago quarter. MTN has delivered an earnings beat of 17.3%, on average, in the trailing four quarters.

Dave & Buster's Entertainment PLAY currently has an Earnings ESP of +13.04% and a Zacks Rank #3. PLAY is likely to register top and bottom-line growth when it reports third-quarter fiscal 2021 numbers. The Zacks Consensus Estimate for its quarterly revenues is pegged at $320.5 million, which suggests growth of 193.9% from the figure reported in the prior-year quarter.

The Zacks Consensus Estimate for Dave & Buster's quarterly earnings has moved up 20% in the past seven days to 12 cents per share, suggesting substantial growth from a loss of $1.01 reported in the year-ago quarter. PLAY has delivered an earnings beat of 201.8%, on average, in the trailing four quarters.

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