Lululemon Earnings Signal Easy Part of Turnaround Has Been Seen

For the full year, Lululemon posted diluted EPS of $1.66 on revenues of $1.8 billion, compared with 2013 total EPS of $1.91 and revenues of $1.6 billion. Analysts were looking for $1.82 on revenues of $1.79 billion.

Same-store sales in the quarter rose by 5% year-over-year, while total comparable sales, including online sales, rose 8%, all on a constant dollar basis. Direct to consumer sales now make up 19% of the company’s total sales.

For the year, same-store sales on a constant dollar basis fell by 1% and direct to consumer sales rose 24%.

The company now expects first-quarter EPS in the range of $0.31 to $0.33 on revenues of $413 million to $418 million. Consensus estimates called for EPS of $0.39 on revenues of $442.01 million. In the year-ago quarter, Lululemon posted EPS of $0.34 on sales of $384.62 million.

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For the full 2015 fiscal year, the company raised its EPS outlook from a range of $1.74 to $1.78 on revenues of $1.77 billion to $1.78 billion to a new range of $1.85 to $1.90 on revenues of $1.97 billion to $2.02 billion. The current consensus estimates from analysts calls for EPS of $2.07 on revenues of $2.05 billion. Shares will feel the weight of both full-year revenue expectations and EPS estimates getting cut.

Gross profits as a percentage of revenues were lower both for the quarter (from 53.5% a year ago to 51.5% in the fourth quarter of 2014) and for the full year (from 52.8% to 50.9%). Income from operations as a percentage of quarterly net revenue slipped from 29.6% a year ago to 26.1%. For the full year, income from operations as a percentage of revenue fell from 24.6% to 20.9%.

Lululemon repurchased 3.7 million shares of the company’s common stock in the fiscal year, at an average cost of $40.31 per share.

The company’s CEO said:

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. 2014 was a critical year when we strengthened our leadership team and made important investments in our product pipeline, guest experience, brand, and community engagement. In 2015, we expect to substantially complete this foundational work and accelerate our investments in innovation to drive sustainable global growth as we continue to lead the market that we created.

The stock posted a two-year low last July and has struggled back since then. Shares are down more than 3% over the past two years, but up more than 25% over the past 12 months. At their high in early March, shares were up nearly 42%.

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Lululemon founder and former chairman Chip Wilson resigned from the board of directors in early February.

Lululemon’s shares traded down about 0.6% in Thursday’s premarket session, at $60.61 in a 52-week range of $36.26 to $68.99. The consensus price target before this earnings report was $63.25.