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The Zacks Consensus Estimate for fiscal second-quarter sales is pegged at $2.4 billion, indicating an 8.8% increase from the year-ago quarter's reported figure. The consensus estimate for the company's fiscal second-quarter earnings is pegged at $2.93 per share, suggesting a 9.3% rise from the year-ago quarter’s actual. Earnings estimates have moved down by a penny in the past seven days.
The Vancouver-based company has been reporting steady earnings outcomes, as evident from its top and bottom-line surprise trends in the trailing four quarters. LULU has a trailing four-quarter earnings surprise of 7.42%, on average. Additionally, the top line has surpassed the Zacks Consensus Estimate in the trailing nine quarters. Given its positive record, the question is, can LULU maintain the momentum?
Our proven model does not conclusively predict an earnings beat for lululemon this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
LULU's Q2 Countdown: Trends to Watch Before the Big Reveal
lululemon is expected to have continued its strong business momentum in the second quarter of fiscal 2024, showcasing growth across various channels, regions and product categories. This growth is likely to have been driven by positive consumer response to its products, increased in-store traffic and a robust online performance.
The company has particularly benefited from its international business, including the China Mainland and the rest of the world segments. This has helped offset the weaker discretionary demand trends in North America. The company plans to continue its strategies to boost global brand awareness, which is likely to have contributed to the top-line performance in the fiscal second quarter.
On the last reported quarter’s earnings call, management expressed confidence in the ongoing strength of its international business, particularly in Mainland China. Our model forecasts international revenues of $535.8 million for the fiscal second quarter, accounting for 22.2% of the total revenues.
lululemon has also benefited from strong online demand, supported by its investments in e-commerce to enhance the shopping experience through an omni-channel retail model. Key initiatives include developing websites, building transactional omni functionality and expanding fulfillment capabilities, like curbside pickups, same-day deliveries and BOPUS. The impacts of these efforts are expected to get reflected in second-quarter fiscal 2024 top-line results.
The company has been on a growth trajectory with its Power of Three x2 growth plan, focusing on product innovation, guest experience and market expansion. Strategic initiatives like community-based events and brand campaigns are crucial for increasing brand awareness, attracting customers and strengthening brand loyalty. These efforts are expected to have positively impacted the company's fiscal second-quarter performance.
Additionally, lululemon's men's business has maintained strong momentum, driven by positive customer response to innovations across performance, lounge and the ABC franchise. With significant market share gains in the men's category, the company sees this as a key growth opportunity, contributing meaningfully to its top line in the upcoming quarter.
On the last reported quarter’s earnings call, management anticipated net revenues of $2.4-$2.42 billion for the fiscal second quarter, indicating 9-10% year-over-year growth.
Our model predicts company-operated stores and the direct-to-consumer channel to see year-over-year revenue growth of 8.2% and 10.7%, respectively, in the fiscal second quarter. Other sales are expected to rise 11.1% year over year.
The company expects SG&A expenses, as a percentage of sales, to leverage by 40-60 basis points (bps) year over year in the fiscal second quarter, driven by improved regional penetration, a shift in the timing of certain brand campaign spending, top-line growth and prudent expense management. Our model estimates the SG&A expense rate to decline 60 bps to 36.4% for the fiscal second quarter.
However, lululemon has faced soft demand trends in the North America market, exacerbated by the inflationary environment. Inflation and higher interest rates in North America have been impacting consumer spending on discretionary items, leading to slower revenue growth in lululemon's Americas business in recent quarters.
The company has also encountered challenges related to inventory shortages in key product lines, such as popular bag designs and essential apparel sizes and colors, particularly in the United States. lululemon is working to address these inventory gaps and expects to replenish stock in its stores by the second half of fiscal 2024. As a result, we believe these inventory issues to have negatively impacted revenues in the fiscal second quarter.
On the last reported quarter’s earnings call, management expected dollar inventory to decline in the mid-teens for the fiscal second quarter. The company also anticipated soft inventory trends, coupled with fixed cost deleverage and investments in its multiyear distribution center project, to affect the gross margin in the fiscal second quarter.
lululemon projected a gross margin decline of 100-110 bps for the fiscal second quarter, driven by fixed cost deleverage and ongoing investments in its distribution center project. The company expects the product margin to remain relatively flat year over year despite an increase in markdowns, which is expected to be lower than what was seen in the first quarter of fiscal 2024.
We anticipate a year-over-year adjusted gross margin decline of 110 basis points to 57.7% in the fiscal second quarter.
Our model forecasts an adjusted operating margin of 21.2% for the fiscal second quarter, suggesting a decline of 50 bps from the prior-year quarter. In dollar terms, adjusted operating income is expected to increase 7% year over year in the fiscal second quarter.
Price Performance & Valuation
lululemon’s shares have exhibited a downward trend in the past three months, declining 11.4% compared with the industry’s dip of 2.1%. Additionally, the company has underperformed the Zacks Consumer Staples sector and the S&P 500. In the past year, the leading lifestyle retailer’s shares have slumped 26.6%, lagging the industry’s decline of 3.9%. The stock also compared unfavorably against the sector’s 7.8% growth and S&P 500’s rally of 27%.
Moreover, the lululemon stock has underperformed industry peers, including Guess (GES - Free Report) and V.F. Corp’s (VFC - Free Report) decline of 7.2% and 11.2%, respectively, in the past year. Also, lululemon stayed behind G-III Apparel’s (GIII - Free Report) growth of 40.8% in the same period.
Image Source: Zacks Investment Research
At current price of $268.55, the stock trades slightly higher than its 52-week low of $226.01. Moreover, LULU reflects a significant discount from its 52-week high of $516.39.
From the valuation standpoint, the company trades at a forward 12-month P/E multiple of 17.97X, exceeding the industry average of 12.37X.
Image Source: Zacks Investment Research
The premium valuation suggests that investors have strong expectations for lululemon’s future performance and growth potential. However, the stock currently seems somewhat overvalued. As a result, investors might be hesitant to buy at these elevated levels and may prefer to wait for a more favorable entry point.
Investment Thesis
lululemon is facing several significant challenges. The ongoing rise in inflation and higher interest rates are impacting consumer spending, particularly on discretionary items, making consumers more selective with their purchases. This has been a major challenge for luxury retail brands, especially in the Americas.
However, LULU is witnessing gains from its Power of Three X2 growth strategy. The plan forecasts net revenues of $12.5 billion by 2026, suggesting doubling from the $6.25 billion reported in 2021. Additionally, the company’s long-term strategy emphasizes expanding its footprint in the underpenetrated international markets and increasing its share in the men’s category.
lululemon is particularly optimistic about its expanding presence in international markets, especially China, which offers substantial growth potential. The company aims to quadruple its international revenues over the long term and expects international sales to represent nearly 50% of its total revenues. In addition to its physical retail operations, lululemon is harnessing its digital capabilities to boost sales and enhance customer engagement.
Conclusion
Regardless of what course the LULU stock takes after the second-quarter fiscal 2024 earnings results, it is still a solid long-term buy, given its strong fundamentals. LULU continues to present a compelling investment opportunity for long-term investors, bolstered by its strong profitability and expanding global footprint. If you already hold the LULU stock in your portfolio, sit tight, as the upcoming earnings report is likely to confirm the company's strong performance.
Image: Bigstock
Pre-Q2 Earnings: To Buy or Not to Buy lululemon (LULU) Stock?
lululemon athletica inc. (LULU - Free Report) is likely to witness top and bottom-line growth when it reports second-quarter fiscal 2024 results on Aug 29, after market close.
The Zacks Consensus Estimate for fiscal second-quarter sales is pegged at $2.4 billion, indicating an 8.8% increase from the year-ago quarter's reported figure. The consensus estimate for the company's fiscal second-quarter earnings is pegged at $2.93 per share, suggesting a 9.3% rise from the year-ago quarter’s actual. Earnings estimates have moved down by a penny in the past seven days.
The Vancouver-based company has been reporting steady earnings outcomes, as evident from its top and bottom-line surprise trends in the trailing four quarters. LULU has a trailing four-quarter earnings surprise of 7.42%, on average. Additionally, the top line has surpassed the Zacks Consensus Estimate in the trailing nine quarters. Given its positive record, the question is, can LULU maintain the momentum?
lululemon athletica inc. Price and EPS Surprise
lululemon athletica inc. price-eps-surprise | lululemon athletica inc. Quote
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for lululemon this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
lululemon has an Earnings ESP of -1.00% and a Zacks Rank of 3. You can see the complete list of today's Zacks #1 Rank stocks here.
LULU's Q2 Countdown: Trends to Watch Before the Big Reveal
lululemon is expected to have continued its strong business momentum in the second quarter of fiscal 2024, showcasing growth across various channels, regions and product categories. This growth is likely to have been driven by positive consumer response to its products, increased in-store traffic and a robust online performance.
The company has particularly benefited from its international business, including the China Mainland and the rest of the world segments. This has helped offset the weaker discretionary demand trends in North America. The company plans to continue its strategies to boost global brand awareness, which is likely to have contributed to the top-line performance in the fiscal second quarter.
On the last reported quarter’s earnings call, management expressed confidence in the ongoing strength of its international business, particularly in Mainland China. Our model forecasts international revenues of $535.8 million for the fiscal second quarter, accounting for 22.2% of the total revenues.
lululemon has also benefited from strong online demand, supported by its investments in e-commerce to enhance the shopping experience through an omni-channel retail model. Key initiatives include developing websites, building transactional omni functionality and expanding fulfillment capabilities, like curbside pickups, same-day deliveries and BOPUS. The impacts of these efforts are expected to get reflected in second-quarter fiscal 2024 top-line results.
The company has been on a growth trajectory with its Power of Three x2 growth plan, focusing on product innovation, guest experience and market expansion. Strategic initiatives like community-based events and brand campaigns are crucial for increasing brand awareness, attracting customers and strengthening brand loyalty. These efforts are expected to have positively impacted the company's fiscal second-quarter performance.
Additionally, lululemon's men's business has maintained strong momentum, driven by positive customer response to innovations across performance, lounge and the ABC franchise. With significant market share gains in the men's category, the company sees this as a key growth opportunity, contributing meaningfully to its top line in the upcoming quarter.
On the last reported quarter’s earnings call, management anticipated net revenues of $2.4-$2.42 billion for the fiscal second quarter, indicating 9-10% year-over-year growth.
Our model predicts company-operated stores and the direct-to-consumer channel to see year-over-year revenue growth of 8.2% and 10.7%, respectively, in the fiscal second quarter. Other sales are expected to rise 11.1% year over year.
The company expects SG&A expenses, as a percentage of sales, to leverage by 40-60 basis points (bps) year over year in the fiscal second quarter, driven by improved regional penetration, a shift in the timing of certain brand campaign spending, top-line growth and prudent expense management. Our model estimates the SG&A expense rate to decline 60 bps to 36.4% for the fiscal second quarter.
However, lululemon has faced soft demand trends in the North America market, exacerbated by the inflationary environment. Inflation and higher interest rates in North America have been impacting consumer spending on discretionary items, leading to slower revenue growth in lululemon's Americas business in recent quarters.
The company has also encountered challenges related to inventory shortages in key product lines, such as popular bag designs and essential apparel sizes and colors, particularly in the United States. lululemon is working to address these inventory gaps and expects to replenish stock in its stores by the second half of fiscal 2024. As a result, we believe these inventory issues to have negatively impacted revenues in the fiscal second quarter.
On the last reported quarter’s earnings call, management expected dollar inventory to decline in the mid-teens for the fiscal second quarter. The company also anticipated soft inventory trends, coupled with fixed cost deleverage and investments in its multiyear distribution center project, to affect the gross margin in the fiscal second quarter.
lululemon projected a gross margin decline of 100-110 bps for the fiscal second quarter, driven by fixed cost deleverage and ongoing investments in its distribution center project. The company expects the product margin to remain relatively flat year over year despite an increase in markdowns, which is expected to be lower than what was seen in the first quarter of fiscal 2024.
We anticipate a year-over-year adjusted gross margin decline of 110 basis points to 57.7% in the fiscal second quarter.
Our model forecasts an adjusted operating margin of 21.2% for the fiscal second quarter, suggesting a decline of 50 bps from the prior-year quarter. In dollar terms, adjusted operating income is expected to increase 7% year over year in the fiscal second quarter.
Price Performance & Valuation
lululemon’s shares have exhibited a downward trend in the past three months, declining 11.4% compared with the industry’s dip of 2.1%. Additionally, the company has underperformed the Zacks Consumer Staples sector and the S&P 500. In the past year, the leading lifestyle retailer’s shares have slumped 26.6%, lagging the industry’s decline of 3.9%. The stock also compared unfavorably against the sector’s 7.8% growth and S&P 500’s rally of 27%.
Moreover, the lululemon stock has underperformed industry peers, including Guess (GES - Free Report) and V.F. Corp’s (VFC - Free Report) decline of 7.2% and 11.2%, respectively, in the past year. Also, lululemon stayed behind G-III Apparel’s (GIII - Free Report) growth of 40.8% in the same period.
Image Source: Zacks Investment Research
At current price of $268.55, the stock trades slightly higher than its 52-week low of $226.01. Moreover, LULU reflects a significant discount from its 52-week high of $516.39.
From the valuation standpoint, the company trades at a forward 12-month P/E multiple of 17.97X, exceeding the industry average of 12.37X.
Image Source: Zacks Investment Research
The premium valuation suggests that investors have strong expectations for lululemon’s future performance and growth potential. However, the stock currently seems somewhat overvalued. As a result, investors might be hesitant to buy at these elevated levels and may prefer to wait for a more favorable entry point.
Investment Thesis
lululemon is facing several significant challenges. The ongoing rise in inflation and higher interest rates are impacting consumer spending, particularly on discretionary items, making consumers more selective with their purchases. This has been a major challenge for luxury retail brands, especially in the Americas.
However, LULU is witnessing gains from its Power of Three X2 growth strategy. The plan forecasts net revenues of $12.5 billion by 2026, suggesting doubling from the $6.25 billion reported in 2021. Additionally, the company’s long-term strategy emphasizes expanding its footprint in the underpenetrated international markets and increasing its share in the men’s category.
lululemon is particularly optimistic about its expanding presence in international markets, especially China, which offers substantial growth potential. The company aims to quadruple its international revenues over the long term and expects international sales to represent nearly 50% of its total revenues. In addition to its physical retail operations, lululemon is harnessing its digital capabilities to boost sales and enhance customer engagement.
Conclusion
Regardless of what course the LULU stock takes after the second-quarter fiscal 2024 earnings results, it is still a solid long-term buy, given its strong fundamentals. LULU continues to present a compelling investment opportunity for long-term investors, bolstered by its strong profitability and expanding global footprint. If you already hold the LULU stock in your portfolio, sit tight, as the upcoming earnings report is likely to confirm the company's strong performance.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.