Lululemon Athletica Inc. (LULU), the athletic apparel company best known for its yogawear, is on a roll even as the U.S.–China trade war continues to escalate and weigh on the future economic outlook. The company has been beating earnings expectations and its stock is up nearly 52% on the year compared to the S&P 500’s gain of almost 17%. Analysts at Bank of America expected second-quarter earnings to come in ahead of consensus estimates again amid additional tariffs coming into effect on the weekend.

What It Means for Investors

Lululemon is scheduled to report earnings on September 5. Bank of America expects the Vancouver-based retailer to report earnings per share (EPS) of $0.91, two cents above the consensus forecast of $0.89. The bank’s analysts also expect same-store sales growth of 12.0%, in line with Lululemon’s own guidance of low double-digit growth. 

Those are optimistic expectations despite apparently weaker mall traffic in North America during the second quarter. But if the first quarter is any indication, Lululemon should do just fine. The company, whose women’s business continues to thrive and has expanded successfully in men’s categories as well, beat its expected earnings forecast in the first quarter, posting $0.74 EPS vs. consensus estimates of $0.71 EPS.

While most retailers saw store traffic decelerate during the first quarter, Lululemon saw store traffic increase 8% year over year in the first quarter. In the company’s first quarter earnings report issued in June, the company commented that it did not witness the same slowdown during the start of the second quarter that other retailers had said they were experiencing.

Bank of America also expects comparable store sales for all of 2019 to be in line with Lululemon’s guidance of low double-digit growth. This optimistic expectation comes despite the additional 15% tariffs on Chinese imports that took effect on the weekend. Unlike previous rounds of tariffs, this increase is disproportionately aimed at consumer goods, including apparel and footwear.

Lululemon, however, is less exposed than other retailers. Just 6% of the company’s total finished goods are imported from China, a small enough amount to keep revenues relatively insulated from tariffs. UBS Group told its clients that Lululemon is one retailer, along with Nike Inc. (NKE) and V.F. Corp. (VFC), best positioned to outperform amid the new tariffs.

Looking Ahead

Retailer revenues have been supported by consumer spending, one of the remaining bright spots in a U.S. economy that is seeing business confidence and investment weighed down by the trade war. However, the weakness showing up in other parts of the economy could spread, leading to layoffs and a weaker consumer. Lululemon may not be affected directly by tariffs, but the company could be indirectly hurt by the possibility of an escalating trade war tipping the economy into a recession.