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lululemon Stock Rolls Down 51.7% YTD: Should You Buy or Beware?
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lululemon athletica inc. (LULU - Free Report) has seen a pullback in its share performance since the start of 2024. The recent decline in share performance is attributed to the challenges from the inflationary environment, leading to soft discretionary spending and struggles in the women’s category. These factors have been collectively affecting the company’s Americas business, mainly the United States.
As a result, shares of this Vancouver-based luxury athletic apparel retailer have lost 51.7% in the year-to-date period compared with a 27.5% drop in the broader industry and a 2.6% decline in the Consumer Discretionary sector. In contrast, the S&P 500 has risen 14.4% in the same period. The LULU stock has also lost 36.3% in the past year and tanked 41.9% in three years.
Currently trading at $247.18, the stock trades close to its 52-week low of $226.01. This price reflects a 9.4% premium to its 52-week low mark and a significant 51.1% discount from its 52-week high of $516.39.
lululemon’s Price Performance
Image Source: Zacks Investment Research
LULU is trading below its 50 and 200-day moving averages, indicating a bearish outlook and challenges in sustaining the recent performance levels.
lululemon’s Stock Trades Below 50 and 200-Day Moving Averages
Image Source: Zacks Investment Research
Core Hardships Affecting LULU
lululemon’s recent struggles in the Americas segment relate to a revenue slowdown in the United States, which continued in second-quarter fiscal 2024. Rising inflation and higher interest rates have softened consumer spending, leading to greater selectivity in discretionary purchases. This has been a major challenge for luxury retail brands like lululemon, especially in the United States.
In second-quarter fiscal 2024, revenues for the Americas segment increased 1% year over year and 2% in constant currency. This reflects a slowdown from 3% revenue growth in first-quarter fiscal 2024. Additionally, the revenue increase marks a stark contrast with 11% growth in second-quarter fiscal 2023. The company’s Canada business performed well, achieving year-over-year revenue growth of 8% and 11% in constant currency. However, revenues in the United States remained flat, marking a critical area of focus for the company.
lululemon is not the only company affected by the ongoing macro challenges related to reduced discretionary spending in the United States and inflationary pressures. Luxury apparel retailers and sporting goods companies, including NIKE Inc. (NKE - Free Report) , Ralph Lauren (RL - Free Report) and Hanesbrands Inc. (HBI - Free Report) , have been encountering similar headwinds in recent quarters.
Despite the flat U.S. revenues, lululemon noted that the brand remained strong with increased traffic in stores and online, and positive Google search trends. The men’s category grew, but there was a notable slowdown in the women’s category.
The slowdown in the women's business was due to a product strategy that featured fewer updates to core and seasonal styles, such as changes in color, print, patterns and silhouettes. This reduction in newness, stemming from earlier product decisions, resulted in fewer fresh options for female customers, negatively impacting conversion rates.
While Lululemon remains confident in its innovation pipeline and long-term recovery potential for the women’s business, near-term results are expected to be affected by the lack of newness in women’s products, as reflected in the company's fiscal third-quarter outlook.
lululemon Outlines Cautious View: Is This a Sign?
LULU expects the second half of fiscal 2024 to be almost in line with the second quarter of fiscal 2024, excluding the effects of the 53rd week and a shorter holiday shopping period in the fourth quarter. The company remains cautious due to macroeconomic uncertainties, prompting it to lower its revenue and EPS forecasts for fiscal 2024, and issue conservative guidance for the third quarter.
For fiscal 2024, lululemon anticipates net revenues of $10.375-$10.475 billion, suggesting 8-9% year-over-year growth and a 6-7% rise, excluding the 53rd week in 2024. A shorter holiday season is expected to impact revenues by 3%. The company projects an EPS of $13.95-$14.15, down from the previously mentioned $14.27-$14.47.
For the fiscal third quarter, Lululemon expects net revenues of $2.34-$2.365 billion, indicating 6-7% year-over-year growth. It projects an EPS of $2.68-$2.73, whereas it reported an adjusted EPS of $2.53 in the prior-year quarter.
LULU’s Estimates Follow Suit: Reflect Downtrend
The Zacks Consensus Estimate for LULU’s third quarter, fiscal 2024 and 2025 EPS has declined 0.4%, 1.1%, and 3%, respectively, in the past 30 days. The downward revisions in earnings estimates indicate analysts’ reduced confidence in the stock.
Image Source: Zacks Investment Research
lululemon's Valuation
Image Source: Zacks Investment Research
Despite the downside, lululemon is currently trading at a forward 12-month P/E multiple of 16.82X, exceeding the industry average of 11.55X.
The premium valuation suggests that investors have strong expectations for lululemon’s future performance and growth potential. However, the stock currently seems somewhat overvalued. As a result, investors might be hesitant to buy at these elevated levels and may prefer to wait for a more favorable entry point.
What is the Best Approach: Buy the Dip or Shy Off?
Despite lululemon's Power of Three X2 growth strategy, international expansion efforts and strong performance in the men's category, the stock is facing difficulties. The company is contending with challenges like rising inflation, higher interest rates and slowing revenue growth in North America.
A cautious outlook for the upcoming quarter raises concerns about the LULU stock's near-term growth potential. With its premium valuation, current shareholders might consider securing gains, while new investors should be cautious about approaching this Zacks Rank #5 (Strong Sell) stock.
Image: Bigstock
lululemon Stock Rolls Down 51.7% YTD: Should You Buy or Beware?
lululemon athletica inc. (LULU - Free Report) has seen a pullback in its share performance since the start of 2024. The recent decline in share performance is attributed to the challenges from the inflationary environment, leading to soft discretionary spending and struggles in the women’s category. These factors have been collectively affecting the company’s Americas business, mainly the United States.
As a result, shares of this Vancouver-based luxury athletic apparel retailer have lost 51.7% in the year-to-date period compared with a 27.5% drop in the broader industry and a 2.6% decline in the Consumer Discretionary sector. In contrast, the S&P 500 has risen 14.4% in the same period. The LULU stock has also lost 36.3% in the past year and tanked 41.9% in three years.
Currently trading at $247.18, the stock trades close to its 52-week low of $226.01. This price reflects a 9.4% premium to its 52-week low mark and a significant 51.1% discount from its 52-week high of $516.39.
lululemon’s Price Performance
Image Source: Zacks Investment Research
LULU is trading below its 50 and 200-day moving averages, indicating a bearish outlook and challenges in sustaining the recent performance levels.
lululemon’s Stock Trades Below 50 and 200-Day Moving Averages
Image Source: Zacks Investment Research
Core Hardships Affecting LULU
lululemon’s recent struggles in the Americas segment relate to a revenue slowdown in the United States, which continued in second-quarter fiscal 2024. Rising inflation and higher interest rates have softened consumer spending, leading to greater selectivity in discretionary purchases. This has been a major challenge for luxury retail brands like lululemon, especially in the United States.
In second-quarter fiscal 2024, revenues for the Americas segment increased 1% year over year and 2% in constant currency. This reflects a slowdown from 3% revenue growth in first-quarter fiscal 2024. Additionally, the revenue increase marks a stark contrast with 11% growth in second-quarter fiscal 2023. The company’s Canada business performed well, achieving year-over-year revenue growth of 8% and 11% in constant currency. However, revenues in the United States remained flat, marking a critical area of focus for the company.
lululemon is not the only company affected by the ongoing macro challenges related to reduced discretionary spending in the United States and inflationary pressures. Luxury apparel retailers and sporting goods companies, including NIKE Inc. (NKE - Free Report) , Ralph Lauren (RL - Free Report) and Hanesbrands Inc. (HBI - Free Report) , have been encountering similar headwinds in recent quarters.
Despite the flat U.S. revenues, lululemon noted that the brand remained strong with increased traffic in stores and online, and positive Google search trends. The men’s category grew, but there was a notable slowdown in the women’s category.
The slowdown in the women's business was due to a product strategy that featured fewer updates to core and seasonal styles, such as changes in color, print, patterns and silhouettes. This reduction in newness, stemming from earlier product decisions, resulted in fewer fresh options for female customers, negatively impacting conversion rates.
While Lululemon remains confident in its innovation pipeline and long-term recovery potential for the women’s business, near-term results are expected to be affected by the lack of newness in women’s products, as reflected in the company's fiscal third-quarter outlook.
lululemon Outlines Cautious View: Is This a Sign?
LULU expects the second half of fiscal 2024 to be almost in line with the second quarter of fiscal 2024, excluding the effects of the 53rd week and a shorter holiday shopping period in the fourth quarter. The company remains cautious due to macroeconomic uncertainties, prompting it to lower its revenue and EPS forecasts for fiscal 2024, and issue conservative guidance for the third quarter.
For fiscal 2024, lululemon anticipates net revenues of $10.375-$10.475 billion, suggesting 8-9% year-over-year growth and a 6-7% rise, excluding the 53rd week in 2024. A shorter holiday season is expected to impact revenues by 3%. The company projects an EPS of $13.95-$14.15, down from the previously mentioned $14.27-$14.47.
For the fiscal third quarter, Lululemon expects net revenues of $2.34-$2.365 billion, indicating 6-7% year-over-year growth. It projects an EPS of $2.68-$2.73, whereas it reported an adjusted EPS of $2.53 in the prior-year quarter.
LULU’s Estimates Follow Suit: Reflect Downtrend
The Zacks Consensus Estimate for LULU’s third quarter, fiscal 2024 and 2025 EPS has declined 0.4%, 1.1%, and 3%, respectively, in the past 30 days. The downward revisions in earnings estimates indicate analysts’ reduced confidence in the stock.
Image Source: Zacks Investment Research
lululemon's Valuation
Image Source: Zacks Investment Research
Despite the downside, lululemon is currently trading at a forward 12-month P/E multiple of 16.82X, exceeding the industry average of 11.55X.
The premium valuation suggests that investors have strong expectations for lululemon’s future performance and growth potential. However, the stock currently seems somewhat overvalued. As a result, investors might be hesitant to buy at these elevated levels and may prefer to wait for a more favorable entry point.
What is the Best Approach: Buy the Dip or Shy Off?
Despite lululemon's Power of Three X2 growth strategy, international expansion efforts and strong performance in the men's category, the stock is facing difficulties. The company is contending with challenges like rising inflation, higher interest rates and slowing revenue growth in North America.
A cautious outlook for the upcoming quarter raises concerns about the LULU stock's near-term growth potential. With its premium valuation, current shareholders might consider securing gains, while new investors should be cautious about approaching this Zacks Rank #5 (Strong Sell) stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.