The Canadian yoga-athletic maker, Lululemon Athletica Inc. (LULU, Financial), reported its fourth quarter earnings for the fiscal year 2014 on March 26 before the markets opened and the numbers mix was indeed spectacular exceeding the Street expectations. However, the management provided guidance for the coming fiscal year 2015, which was weak and below the analysts’ estimates, thereby, driving the stock downwards by about 5% in early trading. Let’s quickly peek into what got shared during the management call of the fourth quarter of fiscal year 2014.
The quarter highlights
As the yoga wear retailer was able to catch the attention of its customers during the winters and the holiday season when its sales almost peaked, revenue for the quarter jumped 16% year-over-year to $602.5 million, and met the consensus estimate that stood at $602.41 million. Total comparable sales rose 8% during the quarter on a constant dollar basis, comprising comparable store sales and direct to consumer sales through the e-commerce network.
The e-commerce revenue improved 17% to $114.5 million, contributing to 19% of the total company’s net revenue earned during the quarter, while comparable store sales just went up 5% on a constant currency basis. Maybe, that’s why the company has been promulgating measures to grow its e-commerce section which would contribute immensely to its revenue component in the forthcoming quarters.
Backed by the growth in net revenue for the quarter, the net income rose to $110.9 million, or $0.78 a share, from $109.7 million, or $0.75 a share, a year earlier. Earnings for the final quarter also surpassed Bloomberg analysts’ average estimates of $0.73 a share.
CEO, Laurent Potdevin, stated during the earnings call – “Our solid performance in the fourth quarter builds on the momentum that began in the third quarter and reflects improved traffic and a strong guest response…”
The company had warned in January this year, that the gross margins would be hurt during the fourth quarter due to the increase in expenses for improving its distribution network to serve customers directly and expansion program into newer markets where the company intends to open its stores. Gross profit as a percentage of revenue was lower for the quarter at 51.5%, from 53.5% reported a year ago.
Investor rewards continue
0.4 million shares were repurchased by the athletic wear maker during the fourth quarter at an average cost of $43.30 per share. In fact, it is interesting to note that through the fiscal year 2014, the company repurchased 3.7 million shares of the company’s common stock, which means that Lululemon Athletica remains interested in adding to shareholders’ value by returning cash to its stockholders.
The cash balance also remains firm at $664.5 million at the end of the fiscal year 2014, which means that the company has the ability to generate enough cashflow to pay back to the shareholders.
Outlook is a cautious one
As input costs are estimated to remain at the higher end going forward and currency fluctuations continuing in the near future, the company expects the first-quarter EPS of fiscal year 2015 to be in the range of $0.31-$0.33 a share on revenue of $413-$418 million. The guidance meted by the management, however, happens to be below the consensus estimate for EPS of $0.39 a share on revenue of $442.01 million. This has firmly weighed down the stock price as the stock moved into the negative territory soon after the fiscal year 2015 outlook got announced.
Concluding note
The fourth quarter results lies testimony to the fact that Lululemon’s sales from the direct-to-consumer business is growing exponentially and with the current expansion plan in place the Vancouver based Canadian apparel maker would witness greener pastures ahead. So, let’s stay tuned as the company moves into the next fiscal year in which it expects to accelerate its investments in innovation for driving its global growth going forward.
