Can Lululemon Pull a Nike on Earnings Day?

Source: Thinkstock

Source: Thinkstock

Lululemon Athletica (NASDAQ:LULU) will report earnings this Thursday, and the market apparently can’t decide which way to push the stock ahead of time. Shares closed Monday’s regular session up 3.55 percent at $49.32, but fell as much as 2 percent in post-market trading before leveling off. Monday’s gain erases a two-day slide at the end of the last week, which itself punctuated a three-day rally of about 6 percent. Shares are down 7.7 percent over the past month and nearly 19 percent this year to date.

In short, it’s been a wild ride. The trip began with a gut-wrenching drop in January after Lululemon warned investors that weak results were incoming. The company reduced its fourth-quarter revenue guidance from a range between $535 million and $540 million to a range between $513 million and $518 million. Earnings expectations were reduced from a range between 78 cents per share and 80 cents per share to a range between 71 cents per share and 73 cents per share.

At the time, Lululemon Chief Financial Officer John Currie said that, “We were on track to deliver on our sales and earnings guidance through the month of December; however, since the beginning of January, we have seen traffic and sales trends decelerate meaningfully.”

The decline concluded a year at Lululemon that was characterized by product problems and management shuffling. The year was also marked by general economic and market headwinds that affected the clothing and sportswear industry at large. Nike (NYSE:NKE) and Under Armour (NYSE:UA) have both reported a challenging global economy as a headwind.

For its part, Nike has generally persevered. The company recently reported third-quarter earnings that came in ahead of analyst expectations. Total revenues increased 13 percent to $7 billion, beating the mean analyst estimate of $6.69 billion. Nike brand revenues increased 14 percent to $6.6 billion, or about 94 percent of total, while Converse revenues of $420 million were up 16 percent on the year on a constant currency basis, “mainly driven by strong performance in our largest direct distribution markets: the United States, China, and the United Kingdom,” according to the earnings report. Earnings from continuing operations increased 4 percent on the year to 76 cents per diluted share, beating the mean analyst estimate of 72 cents per share.

Under Armour, which won’t report earnings until April, has also been doing well for itself. Shares are up nearly 40 percent after a strong earnings beat in January. Fourth-quarter revenue increased 35 percent on the year to $683 million and net income grew 28 percent to $64 million. Earnings increased 27 percent to 59 cents per diluted share. Under Armour also increased its guidance for 2014, and is expected revenue to increase between 22 percent and 23 percent and operating income to increase between 23 and 24 percent.

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