[Updated: 12/23/21] LULU Stock Update
Lululemon stock (NASDAQ: LULU) recently reported its Q3 report, wherein revenues and earnings both were slightly below Trefis estimates. The company surpassed market expectations on the top and bottom lines in its Q3 earnings with reported revenues of $1.5 billion, up 30% year-over-year (y-o-y), and adjusted EPS of $1.44, up 31% y-o-y. The company’s y-o-y revenue growth was driven by a 28% increase in North America and a 40% increase internationally. That said, total comparable sales grew 27% y-o-y. When compared to the pre-pandemic quarter, sales were up 26% on a two-year compounded basis compared to 28% last quarter. Lululemon is finding strong demand in categories like menswear and outerwear, and it has only started tapping the potential in markets like China. It should be noted that the athleisure company has been able to steadily grow its gross margin rate to 57% currently – roughly 10 percentage points higher than its rival Nike.
For the full year 2021, the company did raise its 2021 forecast for the third straight time but it was a modest boost. We have updated our model following the Q3 release. We now forecast Lululemon Revenues to be $6.4 billion for the full year 2021, up 45% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $7.74. Given the changes to our revenues and earnings forecast, we have revised our Lululemon Valuation at $420 per share, based on $7.74 expected EPS and a 54x P/E multiple for fiscal 2021 – almost 10% higher than the current market price. We believe that the company’s stock appears cheap at the current levels. Lululemon’s stock has recently dipped despite better-than-expected Q3 results. This is because some investors remain concerned right now about the impact the Omicron variant might have on short-term sales trends. The company’s shares are down around 17% in the last month.
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[Updated: 12/08/21] LULU Q3 Pre-Earnings
Lululemon (NASDAQ: LULU), a company designing and selling athletic and casual apparel, is scheduled to report its fiscal third-quarter results on Thursday, December 9. We expect Lululemon’s stock to trade slightly higher due to revenues and earnings beating expectations marginally, likely driven by a push in its revenues. The company received a boost during the pandemic as people turned to more comfortable clothes during lockdowns. We believe that the retailer seems well-positioned for the post-Covid world as well, as consumers remain interested in fitness and functional apparel.
Our forecast indicates that Lululemon’s valuation is $437 per share, which is slightly higher than the current market price of roughly $435. Look at our interactive dashboard analysis on Lululemon’s Pre-Earnings: What To Expect in Fiscal Q3? for more details.
(1) Revenues expected to be slightly ahead of consensus estimates
Trefis estimates Lululemon’s Q3 2021 revenues to be around $1.5 Bil, marginally ahead of the consensus estimate. The company’s top line grew 61% year-over-year (y-o-y) to 1.5 billion in Q2. This was driven by 142% growth in company-operated store net revenue and 8% growth in direct-to-consumer revenue. It should be noted that the company’s net revenue was also up sequentially from the prior quarter mark of $1.2 billion and up 64% from the 2019 comparable quarter.
While global supply chain woes have severely hurt apparel businesses heading into the important holiday shopping season, Lululemon appears to be in a better place when compared to rival Nike. That said, Nike lowered its full-year guidance due to supply chain issues that hit its factories in Vietnam and Indonesia. On the other hand, Lululemon provided strong guidance for the remainder of the fiscal 2021 – with sales expected to grow at around 25% compared to 2019 and 42% compared to the pandemic impacted sales of 2020.
Going forward, Lululemon 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 534 locations should be able to provide a wider distribution channel to this product going forward.
2) EPS is also likely to be marginally ahead of consensus estimates
Lululemon’s Q3 2021 earnings per share (EPS) is expected to come in at $1.45 per Trefis analysis, marginally above the consensus estimate of $1.41. In Q2, the company saw its gross margin expand 390 basis points (bps) from last year to 58.1%, while its adjusted operating margin expanded 560 bps to 20.6%. Consequently, the company’s EPS grew 139% y-o-y in Q2.
(3) Stock price estimate slightly higher than the current market price
Going by our Lululemon’s Valuation, with an EPS estimate of around $7.54 and P/E multiple of 58x in fiscal 2021, this translates into a price of $437, which is only marginally higher than the current market price.
Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year
It is helpful to see how its peers stack up. LULU Stock Comparison With Peers shows how Sirius XM compares against peers on metrics that matter.
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|S&P 500 Return||-3%||21%||104%|
|Trefis MS Portfolio Return||-1%||42%||283%|
 Month-to-date and year-to-date as of 12/21/2021
 Cumulative total returns since 2017