lululemon athletica inc. LULU is likely to witness top and bottom-line growth when it reports fourth-quarter fiscal 2023 results on Mar 21, after market close.

The Zacks Consensus Estimate for fiscal fourth-quarter sales is pegged at $3.2 billion, indicating a 15% increase from the year-ago quarter’s reported figure. The consensus estimate for the company’s fiscal fourth-quarter earnings is pegged at $5.01 per share, suggesting a 13.9% rise from in the year-ago quarter. Earnings estimates have been unchanged in the past 30 days.

For fiscal 2024 earnings, the Zacks Consensus Estimate is pegged at $12.49 per share, suggesting 24% growth from the year-ago reported figure. The consensus mark has been unchanged in the past 30 days. The consensus estimate for the company’s fiscal 2024 revenues is pegged at $9.6 billion, implying 18.4% growth from the prior year reported figure.

The company delivered an earnings surprise of 11.5% in the last reported quarter. LULU’s bottom line beat estimates by 9.2%, on average, in the trailing four quarters.

Key Factors to Note
lululemon has been benefiting from the continued business momentum, backed by a favorable response to its products. Improvement in store traffic and a solid online show bode well. The persistence of these trends is expected to have boosted the company’s top line in the to-be-reported quarter.

LULU has been capitalizing on the importance of physical retail and the convenience of online engagement, which is expected to have boosted its top and bottom-line performances. The company has been focused on investments to enhance the in-store experience. It has been leveraging its stores to facilitate omnichannel capabilities, including buy online pick up in store (BOPUS) and ship from store. It has also been implementing several strategies to improve the guest experience and reduce wait time. Store expansion efforts are also expected to have acted as an upside.

lululemon has been gaining from improving online demand. Its accelerated e-commerce investments to ensure a robust shopping experience bode well. The company has been investing in developing sites, building transactional omni functionality and increasing fulfillment capabilities. Some notable efforts in this space are curbside pickups, same-day deliveries and BOPUS. Gains from these initiatives are likely to have been reflected in its fourth-quarter fiscal 2023 top-line results.

In January 2024, the company reported strong holiday sales results. LULU stated that it witnessed balanced sales trends across channels, categories and geographies during the holiday selling period, which enabled it to raise its view for the fiscal fourth quarter. The company’s sales mainly benefited from its focus on fresher styles. Management noted that guests continued to respond positively to the innovative and versatile product offerings.

Following a robust holiday season performance, management raised its guidance for the fourth quarter of fiscal 2023. LULU expects net revenues to be $3.170-$3.190 billion for fourth-quarter fiscal 2023, indicating a 14-15% year-over-year increase. The company projects earnings per share of $4.96-$5.00 for the fiscal fourth quarter. The revised view reflects strong sales and effective cost management and operational efficiency.

Our model predicts company-operated stores and the direct-to-consumer channel to register year-over-year revenue growth of 14.7% and 14.6%, respectively, in the fiscal fourth quarter. Other sales are anticipated to increase 14.5% year over year in the to-be-reported quarter.

Additionally, the company has been witnessing improved gross margins in recent quarters due to lower expenses. Gross margin gains have been resulting from lower air freight expenses, which have been aiding product margin, as well as a regional mix.

We expect the adjusted gross margin to expand 130 basis points (bps) year over year to 58.7% in the fiscal fourth quarter, driven by a decline in the cost of sales due to lower freight expenses. For the fourth quarter of fiscal 2023, management expects a gross margin of 58.6-58.7%, suggesting that lululemon has been successfully navigating market dynamics and optimizing its cost structures to achieve improved profitability.

However, the company predicted gross margin growth to be partly offset by strategic investments to support growth, including supply chain, distribution centers, product teams and modest deleverage on occupancy and depreciation. This is likely to have resulted in an elevated SG&A expense rate in the fiscal fourth quarter.

Management predicted SG&A expenses, as a percentage of sales, to deleverage 160-190 bps year over year in fourth-quarter fiscal 2023. The increase is likely to have been driven by its strategic decision to invest in growth initiatives, including efforts to improve global brand awareness.

Our model predicts a fiscal fourth-quarter adjusted operating margin of 28.1%, down 20 bps from the year-ago quarter’s actual. In dollar terms, adjusted operating income is likely to increase 13.8% year over year in the fiscal fourth quarter.