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Can Lululemon Counter Currency Woes with Growth Efforts?

 Shares of Lululemon Athletica Inc. LULU gained 14.1% year-to-date backed by strategic initiatives and strong financial results.

Lululemon is one of the leading yoga-inspired athletic apparel and accessories retailer with operations across North America. The company boasts a solid market position supported by its superior product designs and premium pricing. We are impressed with the company’s favorable demographic and secular trends that ensure top-line growth over the longer term.

The company recently announced solid fourth-quarter fiscal 2015 results, wherein both the top line and the bottom line came above the guidance and beat the Zacks Consensus Estimate, apart from year-over-year improvement. Also, following the spectacular fourth quarter, management issued an encouraging outlook for fiscal 2016, driven by continued top-line momentum, gross margin improvement and efficient inventory management.

Also, with the earnings release, the company outlined four distinct growth strategies to double the revenues to about $4 billion and more than double the earnings by 2020. These strategies, which include product innovation; building store fleet in North America; expanding digital business and international expansion, position the company well for sustained growth and improved profitability over the next five years.

In terms of shareholder-friendly moves, we note that Lululemon has been buying back shares for quite some time now. During the fourth quarter, the company repurchased 2.1 million shares, taking to total for fiscal 2015 to 5 million shares. With this, the company has nearly $28.5 million remaining under the current authorization. This underscores Lululemon’s focus on augmenting shareholder value.

While these factors bode well for Lululemon, the company remains prone to unfavorable currency movements. Despite the flattering fiscal 2016 outlook, the company’s results are expected to be hurt by currency fluctuations. Evidently, management expects modest SG&A deleverage in the fiscal year, which is partially accountable to currency movements, which again is a concern.

Only time will tell if Lululemon can tide over these headwinds on the back of its solid growth strategies.

Zacks Rank & Key Picks

Lululemon currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are Delta Apparel Inc. DLA, Columbia Sportswear Company COLM and Under Armour, Inc. UA. While Delta Apparel sports a Zacks Rank #1 (Strong Buy), Columbia Sportswear and Under Armour carry a Zacks Rank #2 (Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
LULULEMON ATHLT (LULU): Free Stock Analysis Report
UNDER ARMOUR-A (UA): Free Stock Analysis Report
COLUMBIA SPORTS (COLM): Free Stock Analysis Report
DELTA APPAREL (DLA): Free Stock Analysis Report
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