When Lululemon Athletica Inc (NASDAQ:LULU) released its most recent earnings update (29 April 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Lululemon Athletica’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not LULU actually performed well. Below is a quick commentary on how I see LULU has performed. See our latest analysis for Lululemon Athletica
How LULU fared against its long-term earnings performance and its industryLULU’s trailing twelve-month earnings (from 29 April 2018) of US$302.57m has increased by 4.53% compared to the previous year. However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 5.58%, indicating the rate at which LULU is growing has slowed down. Why could this be happening? Well, let’s look at what’s transpiring with margins and if the entire industry is facing the same headwind.
Revenue growth in the past couple of years, has been positive, however, earnings growth has failed to keep up meaning Lululemon Athletica has been ramping up its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the US luxury industry has been growing, albeit, at a unexciting single-digit rate of 6.70% in the prior twelve months, and 4.57% over the past half a decade. This suggests that any tailwind the industry is deriving benefit from, Lululemon Athletica has not been able to realize the gains unlike its average peer.In terms of returns from investment, Lululemon Athletica has not invested its equity funds well, leading to a 18.49% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 15.04% exceeds the US Luxury industry of 6.79%, indicating Lululemon Athletica has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Lululemon Athletica’s debt level, has declined over the past 3 years from 31.90% to 31.55%.
What does this mean?
Lululemon Athletica’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that have performed well in the past, such as Lululemon Athletica gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I suggest you continue to research Lululemon Athletica to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LULU’s future growth? Take a look at our free research report of analyst consensus for LULU’s outlook.
- Financial Health: Is LULU’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.