Improved performance in stores and online should persist this year as the company continues to benefit from website enhancements and new product introductions.
announced strong second-quarter results with total comparable sales growth accelerating to 7% from a 1% decline in the first quarter and adjusted gross margin expanding 220 basis points to 51.6%. As we had already viewed first-quarter performance as a temporary headwind and our current model incorporates the assumption of 3% comparable store sales growth and 15% direct-to-consumer growth in the back half of the year (roughly in line with second-quarter performance when excluding the impact of the online warehouse sale), we expect to increase our $59 fair value estimate by only 1%-2% to account for second quarter’s outperformance, driven by a quicker than expected recovery and the online warehouse sale. In the long run, we still think Lululemon will post high-single-digit average annual top-line growth over the next five years and adjusted operating margin expansion from 18% in fiscal 2016 to 20% in 2021.
Bridget Weishaar is a senior equity analyst for Morningstar.
Second-quarter revenue grew 13%, driven by 2% comparable store sales growth and 29% direct-to-consumer growth (15% when excluding the benefit of the online warehouse sale). In stores, management saw positive trends across conversion, average unit retail and units per transaction. Online sales growth was driven by increases in both traffic and conversion, which we attribute to a positive response to website enhancements. We think performance in both channels is sustainable going into the back half of the year (when excluding the one-time impact of the online warehouse sale) as the company continues to benefit from website enhancements and as new product introductions including the Enlite bra, jackets and outerwear, and Everlux fabric drive unit and average unit retail growth.
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