S&P 500   5,078.18
DOW   38,972.41
QQQ   437.60
bluebird bio stock is ripe for a 400% institutional short squeeze
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
3 lithium stocks to ride a multi-year cycle
Goldman upgraded Nvidia stock, one metric says it could go higher
Critical asset just had biggest fall on record (Ad)
Salesforce stock got a boost. Is it growing off the Nvidia boom?
Autozone stock price is still in the rally zone
Critical asset just had biggest fall on record (Ad)
Closing prices for crude oil, gold and other commodities
New highs are coming for Lowe’s stock despite mixed results
S&P 500   5,078.18
DOW   38,972.41
QQQ   437.60
bluebird bio stock is ripe for a 400% institutional short squeeze
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
3 lithium stocks to ride a multi-year cycle
Goldman upgraded Nvidia stock, one metric says it could go higher
Critical asset just had biggest fall on record (Ad)
Salesforce stock got a boost. Is it growing off the Nvidia boom?
Autozone stock price is still in the rally zone
Critical asset just had biggest fall on record (Ad)
Closing prices for crude oil, gold and other commodities
New highs are coming for Lowe’s stock despite mixed results
S&P 500   5,078.18
DOW   38,972.41
QQQ   437.60
bluebird bio stock is ripe for a 400% institutional short squeeze
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
3 lithium stocks to ride a multi-year cycle
Goldman upgraded Nvidia stock, one metric says it could go higher
Critical asset just had biggest fall on record (Ad)
Salesforce stock got a boost. Is it growing off the Nvidia boom?
Autozone stock price is still in the rally zone
Critical asset just had biggest fall on record (Ad)
Closing prices for crude oil, gold and other commodities
New highs are coming for Lowe’s stock despite mixed results
S&P 500   5,078.18
DOW   38,972.41
QQQ   437.60
bluebird bio stock is ripe for a 400% institutional short squeeze
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
3 lithium stocks to ride a multi-year cycle
Goldman upgraded Nvidia stock, one metric says it could go higher
Critical asset just had biggest fall on record (Ad)
Salesforce stock got a boost. Is it growing off the Nvidia boom?
Autozone stock price is still in the rally zone
Critical asset just had biggest fall on record (Ad)
Closing prices for crude oil, gold and other commodities
New highs are coming for Lowe’s stock despite mixed results

Trading Channel Breakout in Lululemon Brought by Earnings

Key Points

  • Shares of Lululemon Athletica rallied after the company announced its first-quarter earnings, evidently beating expectations and other peers in the sector. 
  • Double-digit growth across the more essential metrics and margins places the stock on the right path to breakout of its trading channel. 
  • Management actions point to sustained momentum expectations; analyst ratings agree that there is significant upside to be had on Lululemon earnings.
  • 5 stocks we like better than Ralph Lauren

Image of Lululemon storefront; check out Lululemon earnings on MarketBeat

Shares of Lululemon Athletica NASDAQ: LULU traded higher by as much as 13% on the after-market hours of Thursday evening as first quarter 2023 Lululemon earnings results came out. The advance in the stock price comes amid Lululemon's beating earnings expectations, as it reported $2.28 earnings per share — analysts were only expecting $1.96. 

The 54% advance in earnings per share over the 12 months comes from favorable conditions for the brand, one of the few operators immune to broader industry challenges. These results enable the stock to break out of its previous trading channel between $300 and $385.

Despite being confined to its year-and-a-half-long trading channel, Lululemon stock has outperformed other names in the sector. Names like Under Armour Inc. NYSE: UAA have fallen behind by as much as 25% in the past 12 months of stock performance, showcasing the operational superiority of Lululemon coupled with its brand penetration. 

Even Ralph Lauren Co. NYSE: RL, one of the few that grew sales and earnings in the first quarter, underperformed Lululemon by 6.6% during the past year. As analysts see further upside in this stock, partly backed by bullish management outlooks, investors could ride a breakout momentum into the next valuation bracket.


Double-Digits Only

Lululemon's earnings press release leads with one of the most astonishing results in the sector, announcing a 24% revenue increase over the year to end the quarter at $2 billion. As every industry has its set of key performance indicators (KPIs), the retail industry leans heavily on comparable sales, which investors and analysts rely heavily on to deduce the business's health. Unfortunately, comparable sales for Lululemon came in a bit lower, though still impressive and over most — if not all — of the other operators in the space. Sporting a 17% increase (14% after inflation), the nearly 10% discrepancy to net revenue comes from opening new stores.

In the quarterly financial supplements, management reports that the company grew to 662 locations, compared to 579 for the first quarter of 2022. A 14.3% increase in net locations is no small feat and should, by all means, be taken as a bullish viewpoint. During a year when inflation rose to multi-decade highs, consumers could still shop at Lululemon; whether it is because value beats prices or whether quality beats competitors is up to the marketplace to decide. Bears will still find a critique in that the company only focuses on brick-and-mortar sales, though management is glad to turn these objections on its head.

E-commerce sales grew by 16% on a constant dollar basis, or 13% after inflation's effects. Other names like Macy's NYSE: M, which had dominated the space for many years before Lululemon hit the market, only derive about a third of total revenue from digital sales channels. Lululemon's digital sales accounted for 47.9% of total income; a year ago, these figures were only 45.3%. As demand continues to grow for the company, aided by a robust product mix allowing for inventory flexibility and adaptability, gross margins for the business increased to 57.5% from 2022's 53.9%.

Further Upside

Considering that Lululemon's financials reflect a 24% increase in inventories, a foundation lays out for a scenario where momentum keeps pushing. On top of the expansionary activity showcased through new store openings and increased inventory are some developments that bulls can lean on. Operating margins, a direct measure of management effectiveness in underlying operations, grew to 20.1% from 2022's 16.1%. Return on equity finished the quarter at 8.7% compared to 7.1% a year prior, a direct benefit to shareholders.

Shareholder returns came from more than just core operations in the company. As a magnificent year allowed for $45.5 million in operating cash flows, capital returned to shareholders also increased. A total of 300,000 shares were retired off the open market, representing a total cash value returned of $98.1 million. 

Management states that these shares were repurchased at an average price of $336.7, higher than the closing price on Thursday. Investors may have missed the first warning as the stock broke out after earnings. However, many can still acquire the stock at a reasonable premium to what insiders paid. 

Executives are not the only ones to think that the stock is cheaper rather than not, as Lululemon's analyst ratings point to a 23% upside from the closing prices of Thursday evening. In addition, good metrics make it possible for the topside price target of $542 to become the new norm. If these evidential facts were insufficient to write a check, management outlooks might do it. Expectations for full-year 2023 earnings per share of $11.74 to $11.94 would place the stock on a 26.0x to 27.0x price-to-earnings multiple, where earnings are those of the expected next twelve months. 

Historically, Lululemon stock has traded between 28.0x to 46.0x multiples of the next twelve months' earnings, placing today's valuation at a significant discount to where the stock price could go.

→ This is the #1 Stock to Buy for the AI Tidal Wave (From Chaikin Analytics) (Ad)

Should you invest $1,000 in Ralph Lauren right now?

Before you consider Ralph Lauren, 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 Ralph Lauren wasn't on the list.

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

View The Five Stocks Here

Beginners Guide To Retirement Stocks Cover

Click the link below and we'll send you MarketBeat's list of seven best retirement stocks and why they should be in your portfolio.

Get This Free Report

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Macy's (M)
3.0397 of 5 stars
$19.95+3.4%3.31%8.11Reduce$15.45
Lululemon Athletica (LULU)
4.1824 of 5 stars
$467.84-0.1%N/A59.52Moderate Buy$493.87
Under Armour (UAA)
3.4097 of 5 stars
$8.89+4.2%N/A9.88Hold$9.92
Ralph Lauren (RL)
4.6089 of 5 stars
$182.60-2.3%1.64%20.70Moderate Buy$151.55
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


Featured Articles and Offers

3 Fitness Stocks Ready to Rally

3 Fitness Stocks Ready to Rally

Exploring 2024's investment impacts tied to New Year's resolutions in fitness retail. Nike, Lululemon, and Skechers are in focus for growth debate.

Search Headlines: