Key points
- Lululemon shares traded heavily following Thursday’s report.
- While they managed to beat expectations, the company’s forward guidance was lighter than expected.
- However, several analysts have already reiterated their buy ratings, so we may be looking for an interest entry opportunity here.
- 5 stocks we like best about Lululemon Athletica
Last night, the athleisure giant Lululemon Athletica Inc. NASDAQ: LULU reported fourth-quarter earnings in what was a highly anticipated release. Although its shares have traded relatively weakly so far this year, compared to the broader market, which has been setting record highs seemingly nonstop, Lululemon shares are down 6% for the year. However, they are still up 90% from their 2022 low and, at least before last night’s report, have moved less than 10% from their new all-time high.
However, as of Friday’s pre-market session, that gap is about to widen considerably. Lululemon shares fell 13% and are on pace to open at their lowest level since November. That will be a tough pill for investors to swallow, considering the company managed to beat analysts’ expectations on both key numbers in the report.
Strong numbers
Earnings per share, for example, were 5% higher than expected and more than 5 times higher than the same period last year, while revenues also beat consensus and showed year-over-year growth of 16%. %. The company’s margins had also increased, so you’d be forgiven for thinking they’d done everything right to deserve a rise in their share price rather than the other way around.
But Wall Street is nothing if not forward-looking, and while Lululemon may have delivered better-than-expected results last quarter, the company issued forward-looking guidance that suggests it will perform worse than expected this quarter.
For the first quarter of 2024, Lululemon now expects net revenue of $2.175 billion to $2.2 billion, a far cry from the consensus of $2.26 billion. Likewise, earnings per share for the first quarter are expected to be in the range of $2.35 to $2.40, compared to the $2.55 expected by analysts. To make matters worse, it appears that the unexpected contraction may be more than just a temporary blimp, as the company’s full-year forecast has also come under a bit of a light.
Analysts’ bullish positions
As with Nike Inc NYSE:DIHowever, even though their shares look set to open significantly below their pre-earnings price, several analysts have already come out with reiterations of the bullish outlook on Lululemon. Telsey Advisory Group, for example, reiterated its Outperform rating, as did TD Coen and Needham & Company. These are positions not to be taken lightly by investors who are considering taking advantage of this drop in Lululemon stock. While the last two analyst teams reduced their price targets to $515 and $500 respectively, the Telsey team reiterated their price target of $550.
Considering the stock closed last night at $478 and was trading down around $416 in Friday’s pre-market session, we’re talking about a targeted upside of more than 30%. There’s no denying the fact that Lululemon’s outlook for the year ahead is a bit weaker now than it was Thursday morning, but it appears the stock’s initial reaction is already overkill.
Considering a position
Investors should look for stocks that can stay above the $400 line and begin consolidating before the weekend or early next week. For those of us on the sidelines considering a position, it’s an interesting situation to watch. There’s no denying the fact that the stock will face negative rerating in the short term, but the company’s long-term potential is clearly still positive enough to justify the kind of comments already coming from analysts.
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