Lululemon’s sales stretch beyond expectations

March 26, 2015, 12:58 PM UTC
lululemon athletica Hosts Complimentary Yoga Citywide
LONDON, ENGLAND - MARCH 20: lululemon athletica host complimentary yoga classes all over London on March 20, 2014 in London, England in celebration of it's first store opening in the United Kingdom. lululemon athlectica opens in Covent Garden on March 28, 2014. (Photo by Tim P. Whitby/Getty Images for lululemon athletica)
Photograph by Tim P. Whitby — Getty Images

Lululemon posted a 16% jump in revenue for the key holiday quarter, as the yoga and running gear maker said traffic and sales improved at its stores. The apparel retailer’s strong sales indicate the company is successfully moving away from a highly publicized production problem when some yoga pants were deemed a little too see-through. Here’s what you need to know from Lululemon’s (LULU) earnings report.

What you need to know: The company scored a big beat on a very key metric: sales at existing stores have improved strongly. Lululemon’s comparable-store sales leapt by 8% during the quarter, better than the 6.9% increase expected by Wall Street analysts polled by Consensus Metrix. There had been some concerns that the retailer’s existing store base wasn’t growing much and that most of the sales increases were coming from new stores. But Lululemon’s latest results indicate the company is continuing to perform well at locations it has operated for a longer period of time.

The big number: Lululemon reported $602 million in revenue on a profit of $110.9 million (or 78 cents per share), results that exceeded expectations. Gross margin, an important profitability metric, however slightly dipped to 51.5% for the quarter ended February 1 from 53.5% a year earlier. The company also projected revenue for the new year to range between $1.97 billion to $2.02 billion, above the $1.8 billion in revenue the company reported last year.

What you might have missed: Before the results were released, Lululemon’s shares had surged 40% since the release of third-quarter results, an indication that investors have turned more bullish on the stock. While most think of Lululemon as a purveyor of yoga pants for women, the company’s highest growth potential comes from the younger girls business, called ivivva, and from men’s apparel. International expansion is another key opportunity.

And while some analysts have thrown their support behind Lululemon’s management, others have raised concerns. Shortly after the results were released, an analyst at Sterne Agee questioned the status of a turnaround and worried about sales and profit expectations for the new year that fell short of expectations.

“We remain in a ‘wait-and-see’ mode, the Sterne Agee analysts said.

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