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Why Investors Should Keep lululemon (LULU) Stock for Now
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lululemon athletica inc. (LULU - Free Report) has shown resilience backed by robust traffic trends in both stores and e-commerce, which have been boosting its comparable sales (comps) performance. The company is capitalizing on the importance of physical retail and the convenience of online engagement. It is also encouraged by the progress of its Power of Three x2 growth plan.
Driven by these factors and continued business momentum, the company delivered its 10th straight quarter of earnings surprise and the third consecutive quarter of sales beat in third-quarter fiscal 2022. lululemon’s fiscal third-quarter earnings increased 23.5% from the year-ago quarter.
The company’s adjusted earnings improved 28% on a three-year CAGR basis. Revenues advanced 28% year over year. Revenue growth was mainly driven by the strong momentum in its business, backed by a favorable response to its products.
This Zacks Rank #3 (Hold) stock has gained 1.4% in the past year against the industry’s decline of 13.1%. The stock also compared favorably with the Consumer Discretionary sector’s decline of 15.9% and the S&P 500’s decline of 8%.
An uptrend in the Zacks Consensus Estimate echoes the same sentiment. The Zacks Consensus Estimate for lululemon’s fiscal 2023 sales and EPS suggests growth of 28.5% and 26.8%, respectively, from the year-ago period’s reported numbers.
Image Source: Zacks Investment Research
Factors Driving Growth
lululemon has been witnessing a rebound in brick-and-mortar sales, driven by an increase in store traffic, as consumers returned to stores for shopping. The company continues to remain focused on investments to enhance the in-store experience. It is leveraging its stores to facilitate omni-channel capabilities, including the buy online pickup in store and ship-from-store.
The company has implemented several strategies to improve the guest experience and reduce wait time. These include virtual waitlist, mobile POS and appointment shopping. These functionalities enable reducing the time of waiting in line to enter the store, as well as allow customers to complete some transactions like returns, exchanges and purchase of gift cards without entering the store.
Additionally, lululemon expects to capture the growing online demand and ensure a robust shopping experience through its accelerated e-commerce investments. It has been investing in developing sites, building transactional omni functionality and increasing fulfillment capabilities. The company continues to strengthen omni-channel capabilities such as curbside pickups, same-day deliveries and BOPUS (buy online pick up in store).
LULU is enhancing its mobile app in a bid to offer the curbside pickup facility and train its store associates to help customers speed up transactions. Free online digital educator service for people who cannot make it into lululemon stores also bodes well.
The company is also on track with its Power of Three ×2 growth strategy. The move is likely to double its revenues from $6.25 billion in 2021 to $12.5 billion by 2026. The plan focuses on three key growth drivers, including product innovation, guest experience and market expansion.
The five-year plan is likely to quadruple international sales, along with doubling digital and menswear sales. Also, the women’s business and North America operations are each anticipated to witness a low-double-digit CAGR in revenues, with store channel growth in the mid-teens in the next five years. As part of its strategy, the company intends to expand in China, as well as European markets, with plans to open stores in Spain and Italy.
Driven by the robust trends, the company raised its revenue and earnings per share forecasts for the fourth quarter of fiscal 2022. Earnings per share for fiscal 2022 are likely to be in line with the prior forecast. lululemon anticipates net revenues of $2.660-$2.700 billion for fiscal 2022, suggesting year-over-year growth of 25-27%.
For the fiscal fourth quarter, the company expects adjusted earnings per share of $4.22-$4.27. It estimates an effective tax rate of 28.5% for the fiscal fourth quarter.
Headwinds to Overcome
lululemon continues to grapple with elevated costs, which has been hurting its gross margin. In its recent guidance update, the company sent warnings for soft fiscal fourth-quarter gross margin while it expected further SG&A leverage. The company anticipates the gross margin for the fiscal fourth quarter to contract 90-110 basis points (bps) compared with an increase of 10-20 bps mentioned earlier. However, it expects SG&A expenses to leverage 100-120 bps versus the leverage of 30-50 bps mentioned earlier.
Gross margin decline in fiscal 2022 is expected to result from higher investments in the distribution center network and more normalized markdowns from the low levels witnessed in the prior year.
Ralph Lauren currently carries a Zacks Rank #1 (Strong Buy). RL has a trailing four-quarter earnings surprise of 23.6%, on average. Shares of Ralph Lauren have gained 6.5% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ralph Lauren’s current financial-year sales suggests growth of 2.5% while the consensus mark for earnings indicates a decline of 3.2% from the year-ago period's reported figure. It has a long-term earnings growth rate of 9.3%.
Crocs has a Zacks Rank #2 (Buy) at present. Shares of CROX have rallied 69.2% in the past year. The company has a trailing four-quarter earnings surprise of 21.8%, on average.
The Zacks Consensus Estimate for Crocs’ current-year sales and EPS suggests growth of 12.4% and 0.9%, respectively, from the year-ago reported figures. It has a long-term earnings growth rate of 15%.
Oxford Industries currently carries a Zacks Rank of 2. OXM has a trailing four-quarter earnings surprise of 18.9%, on average. Shares of Oxford Industries have gained 37.7% in the past year.
The Zacks Consensus Estimate for Oxford Industries’ current financial-year sales and EPS suggests growth of 23.3% and 34.4%, respectively, from the year-ago period's reported numbers.
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Why Investors Should Keep lululemon (LULU) Stock for Now
lululemon athletica inc. (LULU - Free Report) has shown resilience backed by robust traffic trends in both stores and e-commerce, which have been boosting its comparable sales (comps) performance. The company is capitalizing on the importance of physical retail and the convenience of online engagement. It is also encouraged by the progress of its Power of Three x2 growth plan.
Driven by these factors and continued business momentum, the company delivered its 10th straight quarter of earnings surprise and the third consecutive quarter of sales beat in third-quarter fiscal 2022. lululemon’s fiscal third-quarter earnings increased 23.5% from the year-ago quarter.
The company’s adjusted earnings improved 28% on a three-year CAGR basis. Revenues advanced 28% year over year. Revenue growth was mainly driven by the strong momentum in its business, backed by a favorable response to its products.
This Zacks Rank #3 (Hold) stock has gained 1.4% in the past year against the industry’s decline of 13.1%. The stock also compared favorably with the Consumer Discretionary sector’s decline of 15.9% and the S&P 500’s decline of 8%.
An uptrend in the Zacks Consensus Estimate echoes the same sentiment. The Zacks Consensus Estimate for lululemon’s fiscal 2023 sales and EPS suggests growth of 28.5% and 26.8%, respectively, from the year-ago period’s reported numbers.
Image Source: Zacks Investment Research
Factors Driving Growth
lululemon has been witnessing a rebound in brick-and-mortar sales, driven by an increase in store traffic, as consumers returned to stores for shopping. The company continues to remain focused on investments to enhance the in-store experience. It is leveraging its stores to facilitate omni-channel capabilities, including the buy online pickup in store and ship-from-store.
The company has implemented several strategies to improve the guest experience and reduce wait time. These include virtual waitlist, mobile POS and appointment shopping. These functionalities enable reducing the time of waiting in line to enter the store, as well as allow customers to complete some transactions like returns, exchanges and purchase of gift cards without entering the store.
Additionally, lululemon expects to capture the growing online demand and ensure a robust shopping experience through its accelerated e-commerce investments. It has been investing in developing sites, building transactional omni functionality and increasing fulfillment capabilities. The company continues to strengthen omni-channel capabilities such as curbside pickups, same-day deliveries and BOPUS (buy online pick up in store).
LULU is enhancing its mobile app in a bid to offer the curbside pickup facility and train its store associates to help customers speed up transactions. Free online digital educator service for people who cannot make it into lululemon stores also bodes well.
The company is also on track with its Power of Three ×2 growth strategy. The move is likely to double its revenues from $6.25 billion in 2021 to $12.5 billion by 2026. The plan focuses on three key growth drivers, including product innovation, guest experience and market expansion.
The five-year plan is likely to quadruple international sales, along with doubling digital and menswear sales. Also, the women’s business and North America operations are each anticipated to witness a low-double-digit CAGR in revenues, with store channel growth in the mid-teens in the next five years. As part of its strategy, the company intends to expand in China, as well as European markets, with plans to open stores in Spain and Italy.
Driven by the robust trends, the company raised its revenue and earnings per share forecasts for the fourth quarter of fiscal 2022. Earnings per share for fiscal 2022 are likely to be in line with the prior forecast. lululemon anticipates net revenues of $2.660-$2.700 billion for fiscal 2022, suggesting year-over-year growth of 25-27%.
For the fiscal fourth quarter, the company expects adjusted earnings per share of $4.22-$4.27. It estimates an effective tax rate of 28.5% for the fiscal fourth quarter.
Headwinds to Overcome
lululemon continues to grapple with elevated costs, which has been hurting its gross margin. In its recent guidance update, the company sent warnings for soft fiscal fourth-quarter gross margin while it expected further SG&A leverage. The company anticipates the gross margin for the fiscal fourth quarter to contract 90-110 basis points (bps) compared with an increase of 10-20 bps mentioned earlier. However, it expects SG&A expenses to leverage 100-120 bps versus the leverage of 30-50 bps mentioned earlier.
Gross margin decline in fiscal 2022 is expected to result from higher investments in the distribution center network and more normalized markdowns from the low levels witnessed in the prior year.
Stocks to Consider
Some better-ranked stocks that investors may consider are Ralph Lauren (RL - Free Report) , Crocs Inc. (CROX - Free Report) and Oxford Industries (OXM - Free Report) .
Ralph Lauren currently carries a Zacks Rank #1 (Strong Buy). RL has a trailing four-quarter earnings surprise of 23.6%, on average. Shares of Ralph Lauren have gained 6.5% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ralph Lauren’s current financial-year sales suggests growth of 2.5% while the consensus mark for earnings indicates a decline of 3.2% from the year-ago period's reported figure. It has a long-term earnings growth rate of 9.3%.
Crocs has a Zacks Rank #2 (Buy) at present. Shares of CROX have rallied 69.2% in the past year. The company has a trailing four-quarter earnings surprise of 21.8%, on average.
The Zacks Consensus Estimate for Crocs’ current-year sales and EPS suggests growth of 12.4% and 0.9%, respectively, from the year-ago reported figures. It has a long-term earnings growth rate of 15%.
Oxford Industries currently carries a Zacks Rank of 2. OXM has a trailing four-quarter earnings surprise of 18.9%, on average. Shares of Oxford Industries have gained 37.7% in the past year.
The Zacks Consensus Estimate for Oxford Industries’ current financial-year sales and EPS suggests growth of 23.3% and 34.4%, respectively, from the year-ago period's reported numbers.