Well, I got one thing right regarding the Lululemon Athletica's ( LULU) earnings announcement: The optimism surrounding the stock was too high.
Unfortunately, that was the only part I got right. I anticipated more volatility than what we've had thus far. The stock bounced from the after-hours lows too quickly to create any hedge, so I bailed on my volatility position when an intraday swing long trade triggered. The stock hasn't done much since that trigger, picking up around $1.50 while having little impact on the straddle.
For the third quarter, LULU earned 96 cents per share, 3 cents ahead of estimates, on $916.1 million in revenue. Comp sales rose a solid 16%, tack on an additional 1% if measured with a constant dollar, and combined with the 23% year-over-year revenue growth, and the company continues to fire on all cylinders, even as it approaches $1 billion in revenue per quarter.
Revenue continues to shine for the company, but the company doesn't break out the growth of the direct-to-consumer (DTC) portion of the business. Rather, those numbers are disclosed as a percentage of net income. In the third quarter, DTC was 26.9% of total revenue. A year ago, that number was only 25.3% of net income. By taking the net income from those periods, we can back into a DTC growth rate around 30.3% year-over-year. This is likely what helped boost margins by 70 basis points.
The pressure on shares likely draws from fourth-quarter guidance, which implies a little pressure on the bottom line; but, it continues to demonstrate the massive strength in the company's revenue. Full-year numbers on both EPS and revenue are above previous management guidance as well. The company did see cash drop from $703.6 million a year ago to $586.2 million now; but, there are 2.272 million less shares used for the diluted earnings-per-share calculation as buybacks continue to appear from time to time. The potential for a buyback in Q4 could get the bottom-line number from the $2.10 to $2.13 range at or above the current $2.13 estimate, so it may be premature to say Q4 EPS will come up short.
Support has held well thus far Thursday. The stock has retraced to the prior breakout levels. It did dip below those levels in the early morning trade, but quickly recovered to an area that should give bulls some comfort if we can maintain that level into the end of the week. This dip may serve bulls well as secondary indicators can work off a bit of their overbought status; however, those moves lower do need to be contained. A pause is fine, but bulls don't want to completely lose all momentum.
