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Lululemon Seen As Recovering Faster Than Anticipated

By  |  Stock Markets  |  Jun 12, 2014 05:39AM GMT  |   Add a Comment
 
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Lululemon Athletica Inc. (NASDAQ:LULU) is set to report FQ1 2014 earnings before the market opens on Thursday, June 12th. Lululemon is a retailer of upscale yoga inspired sportswear. After a few years checkered with bad PR, Lululemon is starting to settle in again under new CEO Laurent Potdevin who took the helm in January. This quarter, Wall Street is predicting that Lululemon will report its second straight quarter of flat earnings compared to last year. At the same time, sales are expected to grow by 10%, signaling weaker margins than reported last year. But investors are more optimistic than the Street, here’s what they are expecting from Lululemon on Thursday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

LULU Consensus Estimates
LULU Consensus Estimates

The current Wall Street consensus expectation is for Lululemon to report 32c EPS and $380.32M revenue while the current Estimize.com consensus from 37 Buy Side and Independent contributing analysts is 35c EPS and $387.39M in revenue. This quarter, the buy-side as represented by the Estimize.com community, is expecting Lululemon to beat the Wall Street consensus on both the top and bottom line by a considerable margin.

Over the previous 6 quarter,s the consensus from Estimize.com has been more accurate than Wall Street in forecasting Lululemon’s EPS and revenue 5 and 4 times respectively. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time.

More importantly, it does a better job of representing the market’s actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. Here we are seeing a larger than usual differential between the two groups’ expectations, especially in revenue forecasts.

Historical EPS and Revenue Consensus
Historical EPS and Revenue Consensus

The distribution of earnings estimates published by analysts on the Estimize.com platform range from 30c to 41c per share and from $377.00M to $406.37M in revenues. This quarter we’re seeing a moderate range of estimates on Lululemon’s earnings.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider range of estimates signals less agreement in the market, which could mean greater volatility post earnings.

FQ1 '14 Change in EPS and Revenue Consensus
FQ1 '14 Change in EPS and Revenue Consensus

Over the past 3 months Wall Street brought down its EPS consensus from 40c to 32c while the Estimize consensus slipped from 41c to 35c. Meanwhile the Wall Street revenue forecast slid from $394.25M to $380.32M while the Estimize sales consensus declined from $394.69M to $387.39M. Timeliness is correlated with accuracy and the directionality of analyst revisions going into a report is often a leading indicator. In this case analyst revisions are mostly flat as the earnings release date approaches.

EPS and Revenue Scatter Plot
EPS and Revenue Scatter Plot

The analyst with the highest estimate confidence rating this quarter is WallStreetBean who projects 35c EPS and $383.85M in revenue. WallStreetBean is ranked 10th overall among over 4,500 contributing analysts. This season WallStreetBean has been more accurate than Wall Street in forecasting EPS and revenue 54% and 51% of the time respectively throughout 78 estimates.

Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case WallStreetBean is expecting Lululemon to report in-line with the Estimize consensus on earnings, but come up a few million dollars short of the community’s revenue forecast.

Lululemon has still never fully recovered from the sheer pants recall, Chip Wilson’s wayward comments about women’s bodies, and the shock departure of well respected CEO Christine Day. Lululemon stock is currently trading just below $45 per share while it was as high as the low 80s last year. This quarter contributing analysts on the Estimize.com platform are expecting the yoga retailer to continue its recovery at a faster pace than Wall Street is anticipating under the leadership of the newly appointed CEO Laurent Potdevin.

Get access to estimates for Lululemon published by your Buy Side and Independent analyst peers and follow the rest of earnings season by heading over to Estimize.com. Register for free to create your own estimates and see how you stack up to Wall Street.

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