Lululemon athletica (LULU) is set to report Q4 results tonight after the close with a conference call to follow at 4:30pm ET. LULU reported Q3 results at 4:05pm. Current Capital IQ consensus stands at EPS of $1.01 on Revenue of $783.3 mln. 

Most notable last quarter was the nearly- 500 bps jump in gross profit which hit 51.1% following a sub-50 number in five of the previous seven quarters.

The stock jumped 25% from $57 to $72. LULU has had a double digit post-earnings swing in six of its last seven quarters. The valuation is attractive here as it sits at a Forward P/E of 25.3x. 

Q4 Guidance

  • Sees EPS in the range of $0.96-1.01.
  • Sees revenues of $765-785 mln.
  • Sees SSS in the mid-single digit range.

Q3 Recap

  • Reports Q3 (Oct) earnings of $0.50 per share, $0.07 better than the Capital IQ Consensus of $0.43; revenues rose 13.5% year/year to $544.4 mln vs the $539.94 mln Capital IQ Consensus. 
    • Gross profit increased by 24% to $278.4 million, and as a percentage of net revenue gross profit was 51.1% compared to 46.9% in the third quarter of fiscal 2015.
    • Inventories at the end of the third quarter of fiscal 2016 increased by 2% to $364.5 million compared to $357.8 million at the end of the third quarter of fiscal 2015.

TECHS:

LULU has a 35% short interest with 6.8 days to cover and is breaking out of a very long term cup and handle. Gaps typically replicate themselves and with options as cheap as they historically a play for a breakout is a decent risk reward.