[Note: Lululemon fiscal year ends January]
Lululemon (NASDAQ: LULU), a company designing and selling athletic and casual apparel, is scheduled to report its fiscal first-quarter results on Thursday, September 1. We expect LULU stock to likely see little to no movement due to revenues and earnings just meeting market expectations. Of late, the retail stocks have continued to come under pressure in Q2 as economic headwinds coupled with inflation have intensified. Lululemon’s gross margin declined sequentially and year-over-year to 53.9% in the first quarter, and it expects that year-over-year contraction to continue in the second quarter and the full year. It attributes that compression to higher air freight costs, supply chain constraints, and increased direct-to-consumer (DTC) channel investments. However, it still expects that figure to stay approximately flat for the full-year from fiscal 2021, even as higher costs squeeze its gross margins. The athleisure company’s broad-based sales strength helps it to fend off most of its margin headwinds. The retailer effectively shook off concerns of a post-pandemic letdown with consumer buying habits.
Lululemon launched a new five-year growth plan in April 2022, the “Power of Three x2” plan, which aims to roughly double its annual revenue from $6.3 billion in fiscal 2021 to $12.5 billion by fiscal 2026. The retailer plans to hit that target by doubling its men’s and digital revenues as well as quadrupling its international revenue – relative to fiscal 2021.
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Our forecast indicates that Lululemon’s valuation is $300 per share, which is fairly priced compared to the current market price. Look at our interactive dashboard analysis on Lululemon’s Earnings Preview: What To Expect in Fiscal Q2? for more details.
(1) Revenues expected to be in line with consensus estimates
Trefis estimates Lululemon’s Q2 2022 revenues to be around $1.76 Bil, matching the consensus estimate. The company reported $1.6 billion in net revenue in Q1, a 32% jump from the prior year, as its comparable-store sales increased 28%. Lululemon’s revenues were bolstered by a 32% increase in North American sales and a 29% jump in international sales. For the second quarter, Lululemon expects its revenue to rise 17%-18% year over year. For the full year, the company expects its revenue to increase 21%-22%. We forecast Lululemon Revenues to be $7.6 billion for the full year 2022, up 22% y-o-y.
2) EPS likely to match consensus estimates
Lululemon’s Q2 2022 earnings per share (EPS) is expected to come in at $1.85 per Trefis analysis, in line with the consensus estimate. The company expects its adjusted earnings per share (EPS) to rise 10%-13% year over year in the second quarter, and to increase 20%-22% for the full year. The company reported a diluted EPS of $1.48 in Q1 2022 as compared to $1.16 in the first quarter of 2021. While the operating margin fell 40 basis points in Q1, management was confident in pricing power and overall ability to overcome inflationary impacts. Lululemon generated a gross margin of 53.9% in Q1 2022 -much higher than many of its industry peers such as Nike and Gap, which posted gross margins of 46.6% and 31.5%, respectively, in their latest quarters.
(3) Stock price estimate appropriately priced to the current market price
Going by our Lululemon’s Valuation, with an EPS estimate of around $9.40 and a P/E multiple of 31.9x in fiscal 2022, this translates into a price of $300, which is only 2% lower than the current market price.
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