Can Lululemon (LULU) Q4 Earnings Beat Amid Coronavirus Crisis?

lululemon athletica inc. (NASDAQ:LULU) is slated to report fourth-quarter fiscal 2019 results on Mar 26, after market close.

The yoga-inspired athletic apparel company delivered a positive earnings surprise of 3.2% in the last reported quarter. Moreover, its bottom line beat estimates by 5.4%, on average, over the trailing four quarters.

The Zacks Consensus Estimate for the company’s fiscal fourth-quarter earnings is pegged at $2.25, suggesting growth of 21.6% from the year-ago quarter’s reported figure. Earnings estimates have moved up by a penny in the past seven days. The consensus estimate for fiscal fourth-quarter sales is pegged at $1,375 million, indicating 18.4% growth from the prior-year quarter’s reported figure.

Key Factors to Note

lululemon’s merchandising policies and investments across sales channels have been contributing to the robust earnings trend. Further, the company reported strong holiday results, driven by favorable customer response for its innovative merchandise, which should have aided its performance in fourth-quarter fiscal 2019.

After witnessing a robust holiday season, lululemon projected revenues of $1.370-$1.380 billion for the fiscal fourth quarter on constant-dollar comparable store sales (comps) growth of mid-to-high teens. It expects earnings per share of $2.22-$2.25.

Additionally, product innovation in new categories such as self-care, the enhancement of omni-channel experience and sturdy international growth have been playing vital roles. The continued progress on the Power of Three strategic plan is expected to get reflected in its top and bottom-line results.

However, the company’s fourth-quarter results are expected to be negatively impacted by the coronavirus outbreak in China in January. Early disruptions in China and slowed traffic due to the coronavirus outbreak are likely to have hurt sales to some extent in the to-be-reported quarter.

Moreover, it has been witnessing cost headwinds related to higher airfreight as well as tariffs, which might get reflected in margin results. Higher airfreight costs are anticipated to weigh on earnings per share by 4-5 cents in fiscal 2019. Notably, the company incurred nearly 1 cent of the costs in the fiscal second and third quarters. It expects the remaining 2-3 cent impact to be incurred in the fiscal fourth quarter. As a result, the company expects gross margin to increase marginally in the fiscal fourth quarter compared with the year-ago quarter.

Zacks Model

Our proven model predicts an earnings beat for lululemon this season/time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances 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 #3 and an Earnings ESP of +0.42%.

Other Stocks Likely to Beat Earnings Estimates

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

WD-40 Company (NASDAQ:WDFC) currently has an Earnings ESP of +2.86% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

CarMax, Inc. (NYSE:KMX) presently has an Earnings ESP of +0.13% and a Zacks Rank #3.

Fastenal Company (NASDAQ:FAST) currently has an Earnings ESP of +0.36% and a Zacks Rank #3.

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