Will Lululemon Stock Trade Higher Post Q2?

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LULU: lululemon athletica logo
LULU
lululemon athletica

[Note: Lululemon’s FY’22 ended on January 29, 2023]

Lululemon (NASDAQ: LULU), a company designing and selling athletic and casual apparel, is scheduled to report its fiscal second-quarter results on Thursday, August 31. We expect LULU stock to likely trade higher due to revenues and earnings beating market expectations marginally. Retail stocks have continued to come under pressure as economic headwinds coupled with inflation have intensified. Despite the current macro headwinds, Lululemon was able to deliver robust quarterly earnings in Q1 2023. We expect a similar momentum in the second quarter results as well.

Notably, LULU stock had a Sharpe Ratio of 1.0 since early 2017, which is higher than the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

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Our forecast indicates that Lululemon’s valuation is $390 per share, which is almost 7% higher than 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 slightly ahead of consensus estimates

Trefis estimates Lululemon’s Q2 2023 revenues to be around $2.2 Bil, slightly ahead of the consensus estimate. In the 2023 first fiscal quarter, which ended April 30, LULU’s sales increased 24% over last year to $2 billion. Comparable sales increased 13%, and direct-to-consumer revenue, what it calls its digital segment, was up 17% more than last year. However, Digital accounted for 42% of sales, compared with 45% last year. Lululemon’s balanced omnichannel options are an important element of its performance, and that’s even clearer now as the digital presence and physical stores are having a see-saw moment in how shoppers spend their money.

The company remains on track to achieve its Power of Three x2 goals it unveiled back in April 2022. 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 full year, we forecast Lululemon’s Revenues to be $9.4 billion for the full year 2023, up almost 16% y-o-y.  

2) EPS likely to marginally beat consensus estimates

Lululemon’s Q2 2023 earnings per share (EPS) is expected to come in at $2.57 per Trefis analysis, marginally beating the consensus estimate. The company saw strong profitability in Q1. Its operating margin came at 20.1%, and earnings per share (EPS) increased from $1.48 in Q1 2022 to $2.28 in Q1 2023.

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

Going by our Lululemon Valuation, with an EPS estimate of around 11.61 and a P/E multiple of 33.6x in fiscal 2023, this translates into a price of $390, 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.

 Returns Aug 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 LULU Return -3% 14% 463%
 S&P 500 Return -3% 15% 98%
 Trefis Reinforced Value Portfolio -6% 29% 563%

[1] Month-to-date and year-to-date as of 8/29/2023
[2] Cumulative total returns since the end of 2016

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