Shares of Vancouver yogawear chain Lululemon Athletica Inc. (NYSE:LULU) soared more than 14% in after-hours trading following the company reporting earnings after the closing bell on December 7.
The spike followed a 4.54% jump in the company's share price during the regular session.
Lululemon generated US$278.4 million in profit on US$544.4 million in revenue during the third quarter, which ended October 30. A consensus of analysts had expected US$254.7 million in profit on US$479.69 in revenue.
Total comparable sales, which includes comparable store sales and direct-to-consumer sales, increased 7%, the company noted.
Operations were so strong that the company indicated that it believes that its own shares are undervalued.
Lululemon announced that its board has approved a stock repurchase program for up to US$100 million of its common shares in the open market at prevailing prices.
Conlumino analyst Neil Saunders sent Business in Vancouver a statement where he called Lululemon’s 28.5% profit growth “very respectable.”
That jump came, Saunders said, thanks in part to some gross margin gains and improved productivity at existing stores.
“With two good quarters, this means the company has put the rather soft start to this fiscal year firmly behind it and looks set to end on a high note,” he said.
“It is fortunate for Lululemon that a growing number of consumers are showing an interest in active and healthy lifestyles. However, given the highly competitive state of the sportswear and athleisure market, even in these favorable conditions success is far from guaranteed.”
He then explained that Lululemon has successfully done three things to engineer growth: innovate, provide strong customer service and expand its delivery fleet.
“A year or so ago ago, Lululemon stumbled on the product front and seemed to lose momentum in terms of new designs and fabrication,” Saunders said.
Recently, however, the company has excelled with new products, such as Nulu, which is a lightweight, wicking, quick drying material, he said.
“More emphasis has been placed on the visual appeal of the products with brighter colors and more engaging patterns helping to drive interest,” said Saunders.
“Both of these things have allowed Lululemon to push up its average price points from an already high base.”
The company has also been shrinking its store size as its e-commerce sales have increased.
Lululemon’s guidance, however, was a bit weak.
For the fourth quarter, the company expects earnings per share of between US$0.96 and US$1.01. Analysts had expected guidance of US$1.01. The company estimated that sales would be in the US$765 million to US$785 million range, which was below the analysts’ estimate of US$786.75 million.
The company ended the quarter with 389 stores.
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