Earnings Beat In The Cards For Lululemon Stock?

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LULU: lululemon athletica logo
LULU
lululemon athletica

[Note: The fiscal year ending January 29, 2023 is referred to as FY 2022]

Lululemon (NASDAQ: LULU), a company designing and selling athletic and casual apparel, is scheduled to report its fiscal third-quarter results on Thursday, December 8. We expect LULU stock to likely trade higher due to revenues and earnings beating market expectations. Retail stocks have continued to come under pressure as economic headwinds coupled with inflation have intensified. Despite the current macro headwinds, Lululemon has been able to churn out robust quarterly earnings reports in FY 2022. Management now expects net revenue of $7.86 billion to $7.94 billion and adjusted earnings per share of $9.75 to $9.90. That’s up from its prior guidance for sales of $7.61 billion to $7.71 billion and adjusted per-share profits of $9.35 to $9.50.

Our forecast indicates that Lululemon’s valuation is $389 per share, which is 7% higher than the current market price. Look at our interactive dashboard analysis on Lululemon’s Earnings Preview: What To Expect in Fiscal Q3? for more details.

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

Trefis estimates Lululemon’s Q3 2022 revenues to be around $1.86 Bil, slightly ahead of the consensus estimate. The company reported $1.9 billion in net revenue in Q2, a 29% jump from the prior year, as its comparable-store sales increased 23%. Traffic across channels remained robust with store traffic up over 30% and e-commerce traffic increasing over 40% year-over-year (y-o-y). Its direct-to-customer sales accounted for 42% of total sales in the quarter, slightly up from 41% in the year-ago period. In terms of geography, Lululemon’s revenues were bolstered by a 28% increase in North American sales and a 35% jump in international sales. During the second quarter, sales of men’s apparel rose 27% y-o-y, sales of women’s apparel grew 24%, and sales of accessories jumped 80%. Those growth rates indicate Lululemon remains on track to achieve its new Power of Three x2 goals it unveiled back in April. The plan aims to roughly double its annual revenue from $6.3 billion in fiscal 2021 to $12.5 billion by fiscal 2026.

For the third quarter, Lululemon expects its revenue to rise 23%-25% y-o-y. For the full year, we forecast Lululemon’s Revenues to be $8.1 billion for the full year 2022, up 29% y-o-y.  

2) EPS likely to marginally beat consensus estimates

Lululemon’s Q3 2022 earnings per share (EPS) is expected to come in at $2.01 per Trefis analysis, marginally beating the consensus estimate. The increased Q2 sales leverage helped to drive a 31% rise in adjusted operating income, to $391 million. Lululemon’s adjusted earnings per share, which were boosted by stock buybacks, increased 33% y-o-y to $2.20.

For the full year, Lululemon expects its adjusted operating margin to be approximately flat to up slightly. Its stable outlook implies that the company’s margins should not be slashed by soaring inventories or desperate markdowns.

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

Going by our Lululemon Valuation, with an EPS estimate of around $9.93 and a P/E multiple of 39.1x in fiscal 2022, this translates into a price of $389, which is almost 7% higher than the current market price.

It is helpful to see how its peers stack up. Check out how Lululemon’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Nov 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 LULU Return 10% -7% 459%
 S&P 500 Return 2% -17% 77%
 Trefis Multi-Strategy Portfolio 2% -20% 215%

[1] Month-to-date and year-to-date as of 11/29/2022
[2] Cumulative total returns since the end of 2016

 

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