Did April Showers Bring Lululemon Earnings Power?

Analysts continue to comment on Lululemon Athletica LULU prior to the company's reporting first quarter 2014 results on Thursday, June 12, before the markets open.

Following previews by Deutsche Bank and D.A. Davidson & Co., UBS and Barclays analysts commented on results.

Lululemon's 1Q14 Guidance

First quarter guidance calls for flat c.c. comps, including eCommerce sales. The company expects revenue to come in between $377 and $382 million. Guidance calls for gross margin of 50 to 51 percent and earnings per diluted share of $0.31 to $0.33.

April Strength = Favorable Outlook

Barclays analyst Matthew McClintock (Buy) is optimistic on Lululemon ahead of earnings. McClintock sees April strength benefiting the first quarter as a whole.

The analyst commented, “Commentary regarding QTD trends should remain the focal point for investors looking for a stabilization or potential inflection in comps heading into Thursday. We believe, given the stock's performance YTD, any sequential improvement in trends could provide a meaningful rebound for LULU; however, we are more inclined to favor a slow, sequential quarterly improvement throughout 2014.”

McClintock expects revenue in the first quarter to increase 10.5 percent to $382.2 million vs. $345.8 million in the same period last year, as demand for the brand increases. The analyst sees the SG&A rate to increase 270bps to 33 percent.

UBS Sees Quarter Drought Leaving Groundwork Dry for LT Growth

Analyst Roxanne Meyer from UBS is more cautious on results. Meyer, who holds a Neutral rating on shares, reported that the April pickup is not enough.

The analyst remarked, “While Q1 compares benefited from lapping the Luon shortage and product misses LY (color blocking and lack of neutrals), we believe slower-moving core product, a lack of compelling fashion during most of 1Q, and poor weather kept a lid on comps. Margins will be pressured (expected), given softness in the higher margin core product and investments (stores/IT/talent).”

Although UBS sees opportunity for Lululemon in the second quarter, Meyer reported long-term headwinds including sourcing issues, revitalization of the core product, and the time necessary for investing in “greater depth of fashion.”