We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Store & Online Strength Aids lululemon (LULU) Amid High Costs
Read MoreHide Full Article
lululemon athletica (LULU - Free Report) has been gaining from strength in its core products, a solid online show and robust store traffic. At the store level, comparable store sales increased 7% year over year and 9% on a constant-dollar basis in second-quarter fiscal 2023. The company witnessed more than 20% traffic growth at stores.
It has been investing in stores by facilitating omni-channel capabilities, including buy online pick up in store (BOPUS) and ship from store. The company has implemented several strategies to improve guest experience and reduce wait time. These include virtual waitlist, mobile POS and appointment shopping. These functionalities not only reduce the wait time but also allow customers to complete some transactions like returns, exchanges and purchase of gift cards without entering the store.
Also, store expansion efforts are progressing well. In third-quarter fiscal 2023, the company expects to open 23 company-operated stores. Management expects to open 55 company-operated stores in fiscal 2023, along with the completion of 25 co-located remodels.
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.
LULU is enhancing its mobile app in a bid to offer the curbside pickup service and train its store associates to help customers speed up transactions. In second-quarter fiscal 2023, direct-to-consumer net revenues rose 15% (up 17% on a constant-dollar basis), accounting for 40% of the company’s net revenues. E-commerce traffic also improved more than 20% in the fiscal second quarter.
Consequently, lululemon gave a robust view for the third quarter and fiscal 2023. We estimate net revenues for fiscal 2023 to see growth of 17.7% year over year to $9,546.9 million, in sync with the company’s guidance of $9.51-$9.57 billion.
Improvement in product margin, mainly stemming from lower freight expenses, aided margins in second-quarter fiscal 2023. This led to a 230-basis-point (bps) gross margin expansion and an 80 bps operating margin expansion. For fiscal 2023, the gross margin is expected to expand 190-210 bps, driven by lower airfreight costs. The company estimates airfreight costs to decline 210 bps year over year in fiscal 2023. Moreover, LULU expects markdowns to be flat with last year.
For third-quarter of fiscal 2023, we estimate net revenues of $2,175.8 million, which are expected to meet management’s net revenue guidance of $2.165-$2.19 billion. The company’s guidance indicates 17-18% year-over-year growth, whereas our estimate suggests growth of 17.2%.
Driven by prudent business management and investment in its Power of Three X2 growth pillars, the company expects operating margin growth for fiscal 2023 to surpass the targeted modest expansion annually. It predicts an operating margin expansion of 40-60 bps for fiscal 2023.
For third-quarter fiscal 2023, the gross margin is expected to expand 160-180 bps, driven by lower airfreight costs, offset partly by strategic investments to support growth, including supply chain, distribution centers and product teams, as well as modest deleverage on occupancy and depreciation.
Driven by these factors, lululemon anticipates EPS of $12.02-$12.17 for fiscal 2023. We anticipate an adjusted EPS of $12.02 for fiscal 2023, implying 19.4% year-over-year growth. We expect the fiscal third-quarter adjusted EPS to be $2.25, which is likely to meet the mid-point of the company’s guidance of $2.23-$2.28.
Image Source: Zacks Investment Research
Consequently, shares of this Zacks Rank #3 (Hold) company inched up 0.2% in the past three months against the industry’s decline of 6.2%.
Headwinds to Overcome
lululemon has been witnessing elevated SG&A costs from investments in strategic initiatives to build brand awareness and accelerated focus on fueling its Power of Three X2 plan. As a result, second-quarter fiscal 2023 SG&A expenses increased 23.4% from the year-ago quarter. SG&A expenses, as a percentage of net revenues, expanded 160 bps from the prior-year quarter.
lululemon anticipates SG&A expenses, as a percentage of sales, to deleverage 200-220 bps year over year for the fiscal third quarter. The increase is likely to be driven by its strategic decision to invest in growth initiatives, including efforts to improve global brand awareness. For fiscal 2023, the company expects a year-over-year SG&A deleverage of 150-170 bps. Our model estimates SG&A deleverage of 200 bps for the fiscal third quarter and 150 bps for fiscal 2023.
Elevated inventory has also been concerning. Inventory increased 14% year over year to $1.7 billion at the end of second-quarter fiscal 2023. The company expects inventory growth of high-single to low-double digits at the end of the fiscal third quarter. In the fourth quarter of fiscal 2023, the company anticipates inventory growth in line with sales growth.
Wrapping Up
All said, lululemon’s strength across stores and online platform position it well for growth, and help the company offset cost and inventory headwinds.
Analysts also seem optimistic about the stock. The Zacks Consensus Estimate for lululemon’s fiscal 2023 sales and EPS is pegged at $9.6 billion and $12.13, suggesting respective growth of 35.7% and 20.5% from the year-ago reported figures. The Zacks Consensus Estimate for LULU’s fiscal 2023 earnings has moved up 1.8% in the past 30 days. Notably, a VGM Score of B raises optimism in the stock.
Stocks to Consider
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely GIII Apparel Group (GIII - Free Report) , Guess (GES - Free Report) and Live Nation Entertainment (LYV - Free Report) .
The Zacks Consensus Estimate for GIII Apparel’s current financial year’s sales and earnings per share suggests growth of 8% and 14.7%, respectively, from the year-ago period’s reported figures. GIII has a trailing four-quarter earnings surprise of 526.6%, on average.
Guess has a trailing four-quarter earnings surprise of 43.4%, on average. It flaunts a Zacks Rank #1 at present.
The Zacks Consensus Estimate for Guess’ current financial-year sales and earnings suggests growth of 3.7% and 9.9%, respectively, from the year-ago period's reported figures.
Live Nation has a trailing four-quarter earnings surprise of 34.6%, on average. It currently sports a Zacks Rank #1.
The Zacks Consensus Estimate for LYV’s current financial-year sales and earnings suggests growth of 21% and 57.8%, respectively, from the year-ago period's reported figures.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Store & Online Strength Aids lululemon (LULU) Amid High Costs
lululemon athletica (LULU - Free Report) has been gaining from strength in its core products, a solid online show and robust store traffic. At the store level, comparable store sales increased 7% year over year and 9% on a constant-dollar basis in second-quarter fiscal 2023. The company witnessed more than 20% traffic growth at stores.
It has been investing in stores by facilitating omni-channel capabilities, including buy online pick up in store (BOPUS) and ship from store. The company has implemented several strategies to improve guest experience and reduce wait time. These include virtual waitlist, mobile POS and appointment shopping. These functionalities not only reduce the wait time but also allow customers to complete some transactions like returns, exchanges and purchase of gift cards without entering the store.
Also, store expansion efforts are progressing well. In third-quarter fiscal 2023, the company expects to open 23 company-operated stores. Management expects to open 55 company-operated stores in fiscal 2023, along with the completion of 25 co-located remodels.
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.
LULU is enhancing its mobile app in a bid to offer the curbside pickup service and train its store associates to help customers speed up transactions. In second-quarter fiscal 2023, direct-to-consumer net revenues rose 15% (up 17% on a constant-dollar basis), accounting for 40% of the company’s net revenues. E-commerce traffic also improved more than 20% in the fiscal second quarter.
Consequently, lululemon gave a robust view for the third quarter and fiscal 2023. We estimate net revenues for fiscal 2023 to see growth of 17.7% year over year to $9,546.9 million, in sync with the company’s guidance of $9.51-$9.57 billion.
Improvement in product margin, mainly stemming from lower freight expenses, aided margins in second-quarter fiscal 2023. This led to a 230-basis-point (bps) gross margin expansion and an 80 bps operating margin expansion. For fiscal 2023, the gross margin is expected to expand 190-210 bps, driven by lower airfreight costs. The company estimates airfreight costs to decline 210 bps year over year in fiscal 2023. Moreover, LULU expects markdowns to be flat with last year.
For third-quarter of fiscal 2023, we estimate net revenues of $2,175.8 million, which are expected to meet management’s net revenue guidance of $2.165-$2.19 billion. The company’s guidance indicates 17-18% year-over-year growth, whereas our estimate suggests growth of 17.2%.
Driven by prudent business management and investment in its Power of Three X2 growth pillars, the company expects operating margin growth for fiscal 2023 to surpass the targeted modest expansion annually. It predicts an operating margin expansion of 40-60 bps for fiscal 2023.
For third-quarter fiscal 2023, the gross margin is expected to expand 160-180 bps, driven by lower airfreight costs, offset partly by strategic investments to support growth, including supply chain, distribution centers and product teams, as well as modest deleverage on occupancy and depreciation.
Driven by these factors, lululemon anticipates EPS of $12.02-$12.17 for fiscal 2023. We anticipate an adjusted EPS of $12.02 for fiscal 2023, implying 19.4% year-over-year growth. We expect the fiscal third-quarter adjusted EPS to be $2.25, which is likely to meet the mid-point of the company’s guidance of $2.23-$2.28.
Image Source: Zacks Investment Research
Consequently, shares of this Zacks Rank #3 (Hold) company inched up 0.2% in the past three months against the industry’s decline of 6.2%.
Headwinds to Overcome
lululemon has been witnessing elevated SG&A costs from investments in strategic initiatives to build brand awareness and accelerated focus on fueling its Power of Three X2 plan. As a result, second-quarter fiscal 2023 SG&A expenses increased 23.4% from the year-ago quarter. SG&A expenses, as a percentage of net revenues, expanded 160 bps from the prior-year quarter.
lululemon anticipates SG&A expenses, as a percentage of sales, to deleverage 200-220 bps year over year for the fiscal third quarter. The increase is likely to be driven by its strategic decision to invest in growth initiatives, including efforts to improve global brand awareness. For fiscal 2023, the company expects a year-over-year SG&A deleverage of 150-170 bps. Our model estimates SG&A deleverage of 200 bps for the fiscal third quarter and 150 bps for fiscal 2023.
Elevated inventory has also been concerning. Inventory increased 14% year over year to $1.7 billion at the end of second-quarter fiscal 2023. The company expects inventory growth of high-single to low-double digits at the end of the fiscal third quarter. In the fourth quarter of fiscal 2023, the company anticipates inventory growth in line with sales growth.
Wrapping Up
All said, lululemon’s strength across stores and online platform position it well for growth, and help the company offset cost and inventory headwinds.
Analysts also seem optimistic about the stock. The Zacks Consensus Estimate for lululemon’s fiscal 2023 sales and EPS is pegged at $9.6 billion and $12.13, suggesting respective growth of 35.7% and 20.5% from the year-ago reported figures. The Zacks Consensus Estimate for LULU’s fiscal 2023 earnings has moved up 1.8% in the past 30 days. Notably, a VGM Score of B raises optimism in the stock.
Stocks to Consider
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely GIII Apparel Group (GIII - Free Report) , Guess (GES - Free Report) and Live Nation Entertainment (LYV - Free Report) .
GIII Apparel currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GIII Apparel’s current financial year’s sales and earnings per share suggests growth of 8% and 14.7%, respectively, from the year-ago period’s reported figures. GIII has a trailing four-quarter earnings surprise of 526.6%, on average.
Guess has a trailing four-quarter earnings surprise of 43.4%, on average. It flaunts a Zacks Rank #1 at present.
The Zacks Consensus Estimate for Guess’ current financial-year sales and earnings suggests growth of 3.7% and 9.9%, respectively, from the year-ago period's reported figures.
Live Nation has a trailing four-quarter earnings surprise of 34.6%, on average. It currently sports a Zacks Rank #1.
The Zacks Consensus Estimate for LYV’s current financial-year sales and earnings suggests growth of 21% and 57.8%, respectively, from the year-ago period's reported figures.