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S&P 500   5,051.41
DOW   37,798.97
QQQ   431.10
ASML’s Earnings Could Bring The Stock to New Highs
Stock market today: Asian benchmarks trade mixed amid expectations for US rates to stay high
Kinder Morgan Stock Bid Up In An Oil Breakout
Undervalued UnitedHealth Group Won’t Be For Long
DocuSign and The Case for 66% Upside 
3 Computer Vision Stocks for Long-Term Gains From AI
Silicon Motion Proves That AI in Motion Stays in Motion
S&P 500   5,051.41
DOW   37,798.97
QQQ   431.10
ASML’s Earnings Could Bring The Stock to New Highs
Stock market today: Asian benchmarks trade mixed amid expectations for US rates to stay high
Kinder Morgan Stock Bid Up In An Oil Breakout
Undervalued UnitedHealth Group Won’t Be For Long
DocuSign and The Case for 66% Upside 
3 Computer Vision Stocks for Long-Term Gains From AI
Silicon Motion Proves That AI in Motion Stays in Motion
S&P 500   5,051.41
DOW   37,798.97
QQQ   431.10
ASML’s Earnings Could Bring The Stock to New Highs
Stock market today: Asian benchmarks trade mixed amid expectations for US rates to stay high
Kinder Morgan Stock Bid Up In An Oil Breakout
Undervalued UnitedHealth Group Won’t Be For Long
DocuSign and The Case for 66% Upside 
3 Computer Vision Stocks for Long-Term Gains From AI
Silicon Motion Proves That AI in Motion Stays in Motion

Does Lululemon's 12% Drop Signal Bad News For Clothing Retailers?

Does Lululemons 12% Drop Signal Bad News For Clothing Retailers?Does Lululemons 12% Drop Signal Bad News For Clothing Retailers?

Key Points

  • Luxury athletic clothing retailer Lululemon was trading 12% lower mid-session Friday, after gapping down at the open.
  • The move followed the company’s warning of higher-than-anticipated inventory levels.
  • The third-quarter report was mixed, as same-store sales missed views, but the company increased full-year sales and earnings guidance.
  • Other clothing retailers have struggled with inventory gluts throughout 2022 as buying habits changed during various phases of the pandemic. 
  • 5 stocks we like better than Lululemon Athletica

Luxury athletic clothing retailer Lululemon Athletica Inc. NASDAQ: LULU was trading 12% lower mid-session Friday, after gapping down at the open. The move followed the company’s warning of higher-than-anticipated inventory levels.

Is Lululemon a harbinger of problems ahead for clothing retailers, in an era of inflation and remaining supply-chain issues? 

Other clothing retailers, such as Levi Strauss & Co. NYSE: LEVI, American Eagle Outfitters Inc. NYSE: AEO, Gap Inc. NYSE: GPS and Nike NYSE: NKE have said inventories were up in the past quarter, compared to a year ago. 

However, as a group, apparel retailers have outperformed the vast majority of stocks, led by strong price performance of companies including Lululemon and fellow large caps Ross Stores Inc. NASDAQ: ROST and The TJX Companies Inc. NYSE: TJX

Topping Last Year’s Numbers 

At first glance, Lululemon’s quarterly numbers look pretty good. 


After the bell Thursday, the Vancouver, British Columbia-based company said third-quarter revenue came in at $1.86 billion, a 28% year-over-year increase. Earnings were $2, up 23% over the year-earlier quarter.

Those results beat both top and bottom-line views. MarketBeat earnings data show that Lululemon has a solid history of beating, or at least meeting, analysts’ expectations. 

But the holiday cheer was quickly soured by the company’s mention of higher inventory levels. That sent shares skidding in after-hours trading and plummeting in heavy volume at the open Friday. 

While same-store sales, a common retail metric, increased in the quarter, they fell below Wall Street’s expectations. 

Holding Above 200-Day Line 

Even with Friday’s price drop, which sliced through the 50-day moving average, shares remained above the longer-term 200-day line. If that holds, it’s a signal that institutional investors still have conviction about the stock and aren’t bailing out en masse. 

Certainly, the news was mixed. The company increased its revenue and earnings guidance. It now sees sales in a range of $7.944 billion to $7.994 billion for the full year, up from an earlier forecast of a $7.865 billion to $7.940 billion range. 

It expects net income between $9.87 to $9.97 per share, better than a previous forecast of $9.82 to $9.90 per share. 

Even so, investors weren’t ready to look at the bright side Friday. There’s a case to be made that Thursday’s report gave some investors a reason to take profits. Shares are up 4.01% in the past month and 8.31% in the past three months. 

The stock has been trending near its 10-day moving average since rallying to a structure high of $370.46 on November 11. That represented the most recent technical buy point, but Friday’s action put the stock about 12% below that point. 
Does Lululemons 12% Drop Signal Bad News For Clothing Retailers?

Widespread Inventory Glut

The increase in inventories worried investors. 

It’s not a problem that’s unique to Lululemon. For much of this year, retailers across various categories have reported higher inventories due to rapidly changing consumer buying habits throughout the various phases of the pandemic. Despite offering deep discounts, some items aren’t moving off the shelves as fast as companies had anticipated, based on earlier buying patterns. 

Supply-chain and freight delays complicated the problem. High-demand items took a long time to arrive, and once they were available, consumers were no longer interested. 

For their part, Lululemon’s management team maintains that ongoing demand will justify high inventory levels, rather than necessitating steep markdowns. 

The company has a history of charging full price more than offering discounts. Some analysts appear to have confidence that the company can maintain its pricing power, as evidenced by MarketBeat analyst data for Lululemon, which show that four analysts boosted their price targets after the third-quarter report. 

Analysts’ consensus price target for Lululemon is $413.12, a potential upside of 26.30%. That’s up from a price target of $400.74 a month ago. 

Although clothing retailers as a group fell on Friday, one day does not make a trend. Holiday-season and fourth-quarter sales will reveal much more about changing buying habits, and the medium-term effects of inventory oversupply.

Should you invest $1,000 in Lululemon Athletica right now?

Before you consider Lululemon Athletica, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Lululemon Athletica wasn't on the list.

While Lululemon Athletica currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Lululemon Athletica (LULU)
4.7163 of 5 stars
$338.98+1.3%N/A27.76Moderate Buy$485.39
GAP (GPS)
3.8417 of 5 stars
$20.98-4.1%2.86%15.65Hold$18.89
American Eagle Outfitters (AEO)
3.2656 of 5 stars
$22.30-1.6%2.24%25.92Hold$21.27
NIKE (NKE)
4.4744 of 5 stars
$93.38+0.3%1.58%27.46Moderate Buy$116.26
Levi Strauss & Co. (LEVI)
2.8672 of 5 stars
$20.42+3.5%2.35%65.87Moderate Buy$20.56
Ross Stores (ROST)
4.6552 of 5 stars
$133.83+0.1%1.10%24.07Moderate Buy$155.21
TJX Companies (TJX)
4.1315 of 5 stars
$93.39+0.4%1.42%24.19Moderate Buy$102.19
Compare These Stocks  Add These Stocks to My Watchlist 

Kate Stalter

About Kate Stalter

  • stalterkate@gmail.com

Contributing Author

Retirement, Asset Allocation, and Tax Strategies

Experience

Kate Stalter has been a contributing writer for MarketBeat since 2021.

Additional Experience

Series 65-licensed investment advisor, financial advisor, Blue Marlin Advisors; investment columnist for Forbes, U.S. News & World Report

Areas of Expertise

Asset allocation, technical and fundamental analysis, retirement strategies, income generation, risk management, sector and industry analysis

Education

Bachelor of Arts, Saint Mary’s College, Notre Dame, Indiana; Master of Business Adminstration, Kellogg School of Management at Northwestern University

Past Experience

Founder, financial advisor for Better Money Decisions; editor, stock trading instructor for Investor’s Business Daily; columnist, podcast host, video host for MoneyShow.com; contributor for Morningstar magazine


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