Mall Traffic Challenges Cast Shadow On Lululemon's Q4

Previewing Lululemon Athletica inc.'s LULU fourth quarter results, Wedbush said in a note that mall traffic challenges will cast a shadow on the company's quarterly performance. The firm believes reaction to the quarterly results will depend on the same-store sales guidance for the first quarter of 2017.

Wedbush, not expecting much drama with respect to the Q4 print given that most topics are panning in line with expectations, said the first quarter same-store guidance carries some degree of uncertainty.

Specifically, analyst Morry Brown believes a low-single-digit comp growth guidance could lead to a selloff, while a mid-single digit comp guidance could send shares higher.

Lululemon is scheduled to report after Wednesday's closing bell.

Expectations

Wedbush sees room for modest upside to fourth quarter earnings per share estimate, with the firm's $1.02 estimate a penny above the company's guidance range. The company's initial guidance for gross margin to increase +300-350 bps likely left some room to the upside, the firm commented.

On same-store sales, the firm noted executives suggested during the early-January guidance update that comps were tracking at the high end of the mid-single-digits.

"We see the potential for a modest 4Q comp beat – as January clearance was done entirely through stores and online this year versus two physical warehouse sales (not included in the SSS base) in the year ago quarter," Wedbush said.

"Overall, we believe the scope for significant volatility in reaction to earnings/guidance seems lower than in recent quarters, given some caution on SSS guidance heading in."

Wedbush has an Outperform rating and $81 price target on the stock.

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