lululemon: Why Shares Are Skyrocketing Today

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Yoga-inspired athletic apparel company lululemon athletica (NYS: LULU) has been in the news quite a bit lately. First, for announcing the resignation of the company's founder and later for raising its fourth-quarter earnings forecast. Let's look at the recent changes, as well as what might be in store for the retailer heading into 2012.

Lululemon's loyal base of customers shows no signs of shopping fatigue. Strong holiday sales prompted the brand to raise its profit outlook for the quarter ending Jan. 29. The company now expects earnings to come in between $0.47 and $0.49 per share, up from the previous estimate of $0.40 to $0.42 per share. Lululemon predicts revenue of between $358 million and $363 million for the period.  

How fitting
The boost in projected sales isn't entirely unexpected, considering prior observations that the company's earnings outlook had been too conservative. Lululemon has also been in the spotlight for news that its founder, Chip Wilson, will resign from his position as chief innovation and branding officer on Jan. 29.

While Wilson didn't give a reason for the sudden departure, Lululemon fans needn't worry. The company's chief executive, Christine Day, who has been successfully running Lululemon since 2008, is still at the helm.

Looking ahead
The coming year should be even better for Lululemon as it focuses on increasing inventory to meet higher demand. At the start of 2011, the retailer struggled with weak inventory. Now it seems some analysts are concerned that Lulu's inventory may be rising too quickly. However, given the company's better-than-expected holiday sales, moving that merchandise shouldn't be a problem.

As inventory ramps up, we can also expect online sales to improve. In its third quarter, direct-to-consumer revenue jumped 71% to $23.9 million, which accounted for about 10% of total revenue. We should see these figures continue to grow as the company offers more products online.

Bottom line
The way I see it, Lululemon's brand loyalty will drive significant growth for the retailer in the year ahead. While the stock tends to be volatile, patient investors would be wise to buy and hold this winning pick for the long run. Track Lululemon's growth in 2012 by adding it to My Watchlist, The Motley Fool's free tool for tracking your favorite stocks. Click here to get started!

At the time this article was published

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