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NIKE, Inc. (NKE), Under Armour Inc (UA): Why Lululemon Athletica inc. (LULU) Earnings Might Not Stretch Higher

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Lululemon Athletica inc. (NASDAQ:LULU) will release its quarterly report on Thursday, and for the first time in a long while, investors aren’t comfortable in their assessment of the company’s future potential. Although most expect the yoga retailer’s rapid sales growth to continue, Lululemon Athletica inc. (NASDAQ:LULU) earnings could dip from year-ago levels due to some unusual circumstances that the company has faced recently.

Lululemon Athletica inc. (NASDAQ:LULU)For years, Lululemon Athletica inc. (NASDAQ:LULU)’s capacity for unfettered growth seemed invulnerable to any obstacles. Yet with its infamous recall of its Luon yoga-pant line earlier this year, the company’s sterling reputation took its first crack in its armor, and competitors have looked to take advantage by bolstering their own presence in the popular women’s athletic apparel segment. Let’s take an early look at what’s been happening with Lululemon over the past quarter and what we’re likely to see in its report.

Stats on Lululemon

Analyst EPS Estimate $0.35
Change From Year-Ago EPS (10.3%)
Revenue Estimate $343.1 million
Change From Year-Ago Revenue 21%
Earnings Beats in Past 4 Quarters 4

Source: Yahoo! Finance.

Will Lululemon earnings feel the burn this quarter?
Analysts have restored their confidence about Lululemon Athletica inc. (NASDAQ:LULU) earnings lately, boosting their July quarter estimates by $0.02 per share and their full-year projections by a penny per share. Yet the stock has fallen back from its spring highs, losing more than 10% since early June.

Nearly all of those losses came in the wake of Lululemon’s first-quarter earnings report. On the financial front, the news seemed good, as same-store sales rose 7%, rebounding from recall-related concerns. Yet despite 21% higher overall revenue, earnings were largely flat from year-ago levels. Even worse, CEO Christine Day announced she would leave the company, raising the added difficulty of a leadership change even as Lululemon Athletica inc. (NASDAQ:LULU) already faces the challenges of helping its business bounce back.

Moreover, even after the recall, Lululemon still faces some concerns about whether its business is back up to snuff. Complaints about post-recall orders have come in, raising new questions about quality control and emboldening both NIKE, Inc. (NYSE:NKE) and Under Armour Inc (NYSE:UA) to take steps toward poaching Lululemon Athletica inc. (NASDAQ:LULU)’s customers. Under Armour Inc (NYSE:UA)’s Studiolux Quattro collection represents a clear attempt to mimic the success that Lululemon achieved in wooing female customers, and NIKE, Inc. (NYSE:NKE) has a strong set of endorsement partnerships with female athletes that help drive sales.

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