Lululemon Stock Implodes Post Earnings, Guidance Muted

Last night, the athleisure giant Lululemon Athletica Inc. NASDAQ: LULU reported its Q4 earnings in what was a highly anticipated release. While its stock has traded relatively softly this year so far, compared to the broader market, which has been setting seemingly non-stop record highs, Lululemon shares are down 6% on the year. However, they’re still up 90% from 2022’s low and, ahead of last night’s report at least, were less than a 10% move from a fresh all-time high of their own. 

Going off Friday’s pre-market session however, that gap is about to get extended considerably. Lululemon’s stock was trading down 13% and on the verge of opening at its lowest level since November. It will be a tough pill for investors to swallow, considering the company managed to beat analyst expectations on both headline figures in the report. 

Strong Headline Numbers

Earnings per share, for example, was 5% higher than expected and more than 5 times higher than this time last year, while revenue also topped the consensus and showed year-on-year growth of 16%. The company’s margins were also up, so you’d have been forgiven for thinking they’d done everything right to deserve a bump in their share price rather than the opposite. 

But Wall Street is nothing if not forward looking, and while Lululemon might have performed better than expected last quarter, the company issued forward guidance which suggests they’re going to perform worse than expected this quarter. 

For the first quarter of 2024, Lululemon is now looking at net revenue to land between $2.175 and 2.2 billion, which is well off the consensus for $2.26 billion. Similarly, earnings per share for the first quarter are now expected to come in between $2.35 and $2.40, versus the $2.55 analysts had been forecasting. To make matters worse, it looks like the unexpected contraction could be more than just a temporary blimp, as the company’s full-year forecast also came in a little light. 

Bullish Analyst Stances

Like with Nike Inc NYSE: NKE, however, even with their shares looking set to open considerably lower than their pre-earnings price, several analysts have already come out with reiterations of the bullish outlook on Lululemon. Telsey Advisory Group, for example, reiterated their Outperform rating, as did TD Coen and Needham & Company. These are stances not to be taken lightly by investors who are considering taking advantage of this dip in Lululemon shares. While the latter two analyst teams trimmed their price targets to $515 and $500, respectively, the Telsey team reiterated their $550 price target. 

Considering the stock went into last night’s close at $478 and was trading down around $416 in Friday’s pre-market session, we’re talking about a targeted upside here of more than 30%. There’s no getting around to the fact that Lululemon’s outlook for the year ahead is a bit dimmer now than it was on Thursday morning, but it looks like the initial reaction in the stock is already overdone. 

Considering a Position

Investors should look for shares to tread water above the $400 line and to start consolidating ahead of the weekend or in the early part of next week. For those of us on the sidelines who are considering a position, it’s an interesting situation to be looking at. There’s no getting around to the fact that the stock has to go through a negative revaluation in the short term, but the company’s longer-term potential is clearly still positive enough to justify the kinds of comments that have come through already from the analysts.