The report actually calls for 25%-plus annual earnings per share growth over the next five years. That is even assuming a slowing in comparable sales. Credit Suisse even noted positively, “…suggesting that lofty P/E multiples north of 35 are likely sustainable and a stock price above $60 is possible.” The problem the firm has is the forward P/E of 37.5 against 2012 estimates, generating only a limited room for upside for the stock over the next year.
Going out to 2016, Credit Suisse sees earnings power of $3 billion and $3.80 EPS with its direct business having a potential of adding $500 million in sales and contributing 1.25% to 1.50% in operating margins. That margin was listed as being 25.4% in 2010 but the report is calling for 30% operating margins down the road.
The sales projections are impressive. Credit Suisse noted $1,800 per square foot, but noted that $2,300 per square foot actually looks conservative down the road.
The caution is based upon the following: a downside scenario comes to $28.00, a 5-year discounted cash flow target of $57.00, and a long-term growth driver of $67.00.
The details of the report are actually all positive, at least up to the point that valuation comes into play. The estimates from Credit Suisse are $0.85 EPS in 2011, $1.10 EPS in 2012, $1.43 EPS in 2013, and $1.85 EPS in 2014.
The consensus earnings estimates from Thomson Reuters come to $0.22 EPS versus $0.15 EPS a year earlier, and there is a range of $0.21 to $0.25 EPS. This estimate has not changed significantly but we would note that the latest trend is for Lululemon to significantly beat earnings and raise guidance. Revenues are expected to be almost $206 million for the quarter.
What we are seeing as a reaction this morning is that the street is looking at the positive metrics rather than the caution. Lululemon shares are up 1.2% at $57.35 and the post-split adjusted 52-week trading range is $17.60 to $64.49.
JON C. OGG
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