Will Lululemon (LULU) Miss this Earnings Season? - Analyst Blog

Lululemon Athletica Inc. LULU, a leading yoga-inspired athletic apparel and accessories retailer, is slated to report its fourth-quarter and fiscal 2013 results on March 27, 2014. In the last quarter, it posted a positive surprise of 9.8%. Let's see how things are shaping up for this announcement.

Factors this Past Quarter

Lululemon posted better-than-expected third-quarter fiscal 2013 earnings despite the supply chain issues faced at the beginning of the third quarter. Moreover, quarterly earnings reflected double-digit growth rate. Revenue growth in the quarter was primarily driven by store openings, an upside in comparable-store sales and an increase in Direct-to-Consumer revenues. Despite the positive third quarter results, the company lowered its fourth-quarter and fiscal 2013 outlook due to the persistent supply chain issues that resulted in a soft start to the fourth quarter, overall weak traffic trends and the projection of the weaker Canadian dollar.

Moreover, the company further slashed its guidance in January due to a sharp fall in customer traffic and sales trends since the start of January. Nevertheless, the company is encouraged to see that the investments to strengthen and enhance its back-end product operations structure are starting to pay off. While the company believes that the full realization of these benefits is still a long way, it continues to stringently focus on the successful execution of its long-term strategic plans.

Earnings Whispers?

Our proven model does not conclusively show that Lululemon is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here, as you will see below.

Positive Zacks ESP: Lululemon currently has an Earnings ESP of +1.39%. This is because the Most Accurate estimate stands at 73 cents per share, while the Zacks Consensus Estimate is pegged at 72 cents.

Zacks Rank #4 (Sell): Lululemon's Zacks Rank #4 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with a Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks that Warrant a Look

Here are some other companies you may want to consider as our model shows they have the right combination of elements:

G-III Apparel Group Ltd. GIII has an Earnings ESP of +4.26% and a Zacks Rank #2 (Buy).

CarMax Inc. KMX has an Earnings ESP of +1.89% and a Zacks Rank #2 (Buy).

Zep Inc. ZEP has an Earnings ESP of +11.11% and a Zacks Rank #3 (Hold).