Earnings Beat In The Cards For Lululemon Stock?

Lululemon (NASDAQ: LULU), a company designing and selling athletic and casual apparel, is scheduled to report its fiscal first-quarter results on Thursday, June 3. We expect Lululemon to likely beat revenue and earnings expectations marginally, driven by a boost in digital revenues. While store closures and costs did weigh on Lululemon’s results in 2020, it still benefited from the advent of remote work during the pandemic as its top line expanded 11% year-over-year. The company is doing exceptionally well, thanks to its loyal customer base and unique product portfolio. The athleisure company is also expanding into in-home fitness with its acquisition of Mirror for $500 million, which offers one-on-one and group floor workouts from the home and plans to broaden its offerings into things like meditation. That said, the company is showing plenty of opportunities to keep expanding going forward.

Our forecast indicates that Lululemon’s valuation is $352 per share, which is 9% higher than the current market price of roughly $323. Look at our interactive dashboard analysis on Lululemon’s Pre-Earnings: What To Expect in Fiscal Q1? for more details.

(1) Revenues expected to be slightly ahead of consensus estimates

Trefis estimates Lululemon’s Q1 2021 revenues to be around $1.15 Bil, marginally ahead of the consensus estimate. In 2020, the company’s online revenues surged a robust 101% y-o-y and accounted for 52% of its top line. These revenues helped the company achieve its 2023 goal of doubling its e-commerce revenue from the 2018 levels, which was three years early. It should be noted that the retailer was able to grow its total revenues at an annual growth rate of 24% and 21% in 2018 and 2019, respectively. While the pandemic obviously slowed Lululemon’s growth in 2020, the company’s management is guiding for revenue growth of 27% y-o-y in 2021.

In addition, the company is also expecting the monthly subscription fee of $39 from its Mirror platform to convert into a recurring revenue stream. While this interactive fitness platform of Mirror is still in its early stages and represents less than 5% of its total revenue, Lululemon’s footprint at 521 locations should be able to provide a wider distribution channel to this product going forward.

2) EPS also likely to be marginally ahead of consensus estimates

Lululemon’s Q1 2021 earnings per share (EPS) is expected to come in at 92 cents per Trefis analysis, 2% above the consensus estimate of 90 cents. The retailer saw incremental expenses and elevated inventory levels in 2020, which resulted in a 9% y-o-y decline in EPS.

For full-year 2021, we expect Lululemon’s net margin to grow 160 basis points to 15.0% in fiscal 2021, driven by higher digital sales. This coupled with a strong 30% y-o-y growth in Lululemon’s revenues, could lead to a rise of $200 million y-o-y in net income to $0.8 billion in fiscal 2021. All this, resulting in a possible EPS increase from $4.60 in FY 2020 to around $6.49 in FY 2021.

(3) Stock price estimate higher than the current market price

Going by our Lululemon’s Valuation, with an EPS estimate of around $6.49 and P/E multiple of 54.2x in fiscal 2021, this translates into a price of $352, which is 9% higher than the current market price of $323.

It is also helpful to see how Lululemon’s peers stack up. LULU Stock Comparison With Peers shows how it compares against peers on metrics that matter.

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