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lululemon Q1 Outlook Reflects Measured Optimism: Buy Before Earnings?
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lululemon athletica inc. (LULU - Free Report) is likely to witness top and bottom-line growth when it reports first-quarter fiscal 2025 results on June 5, after market close. The Zacks Consensus Estimate for fiscal first-quarter sales is pegged at $2.35 billion, indicating a 6.6% increase from the year-ago quarter's reported figure.
The consensus estimate for the company's fiscal fourth-quarter earnings is pegged at $2.58 per share, suggesting 1.6% growth from the year-ago quarter’s actual. Earnings estimates have been unchanged in the past 30 days. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
The Vancouver-based company has been reporting steady earnings outcomes, as evident from its top and bottom-line surprise trends in the trailing four quarters. lululemon has a trailing four-quarter earnings surprise of 6.6%, on average. Given its positive record, the question is, can LULU maintain the momentum?
Earnings Whispers
Our proven model conclusively predicts an earnings beat for LULU this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Key Insights on Trends to Define LULU’s Q1 Results
lululemon is expected to have continued its business momentum in the first quarter of fiscal 2025, showcasing growth across various channels, regions and product categories. This growth is likely to have been driven by positive consumer response to its products, increased in-store traffic and a robust online performance.
LULU is also poised to benefit from the strong business momentum in its international markets, including Mainland China and the Rest of the World, as the brand connects well with customers globally. The company has been on a growth trajectory with its Power of Three x2 growth plan, focusing on product innovation, guest experience and market expansion. Initiatives like community-based events and brand campaigns have been crucial for increasing brand awareness, attracting customers and strengthening brand loyalty. These efforts are expected to have aided the company's fiscal first-quarter performance.
On the last reported quarter’s earnings call, management expressed confidence in the ongoing strength of its international business, particularly in Mainland China. Our model predicts international revenues to increase 2.3% year over year for first-quarter fiscal 2025.
However, lululemon has been facing challenges from the inflationary environment and higher interest rates, leading to soft discretionary spending, and struggles in the women’s category, collectively affecting the Americas business. Despite strong engagement with new products, LULU continues to face headwinds in driving consistent footfall and sales growth in its largest market, underscoring the need for stronger momentum and recovery in North America.
Looming concerns over the ongoing tariff dynamics are expected to have particularly weighed on the company’s margins in the to-be-reported quarter due to elevated costs. On the last reported quarter’s earnings call, management remained skeptical about the effects of the rising tariffs on imports from Mexico and China, and adverse currency rates. The company expected these tariffs to result in higher costs in the first quarter of fiscal 2025 and beyond.
For the first quarter of fiscal 2025, LULU expects the gross margin to be flat year over year, as a modest improvement in the product margin is expected to be offset by deleverage on fixed costs. Markdowns are expected to be relatively flat with the prior-year quarter. SG&A, as a percentage of sales, is expected to deleverage 120 bps year over year, driven by higher foundational investments and associated depreciation, as well as strategic initiatives to enhance brand awareness and support growth. The operating margin for the fiscal first quarter is expected to decline 120 bps year over year.
Our model predicts the adjusted gross margin to contract 50 bps year over year to 57.2% in the fiscal first quarter, with an 80-bps decline in the adjusted operating margin to 18.8%.
The company expects EPS for the fiscal first quarter to be $2.53-$2.58, whereas it reported EPS of $2.54 in the prior-year quarter. EPS is expected to include a negative currency impact of 6 cents per share.
LULU’s Price Performance & Valuation
lululemon’s shares have exhibited a downtrend in the past three months, losing 8.9% compared with the industry’s plunge of 6.9%. Meanwhile, the company has underperformed the Zacks Consumer Discretionary sector and the S&P 500’s growth of 1.6% and 0.5%, respectively.
lululemon’s 3-Month Performance
Image Source: Zacks Investment Research
Despite the fall, the lululemon stock has outperformed industry peer V.F. Corp’s (VFC - Free Report) dip of 47.2% in the past three months. However, the LULU stock has underperformed G-III Apparel (GIII - Free Report) and Guess (GES - Free Report) , which have rallied 6.7% and 15%, respectively, in the past three months.
At its current price of $317.09, the LULU stock trades 40.3% above its 52-week low of $226.01. Moreover, lululemon’s current stock price stands 25.1% below its 52-week high of $423.32.
From the valuation standpoint, the company trades at a forward 12-month P/E multiple of 20.74X, exceeding the industry average of 12.72X.
Image Source: Zacks Investment Research
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 may be hesitant to buy at these elevated levels and prefer to wait for a more favorable entry point.
Investment Thesis
lululemon is currently navigating a range of notable challenges. Elevated inflation and higher interest rates are dampening consumer spending, particularly in the discretionary category, making shoppers more selective. These macroeconomic pressures have created headwinds for luxury retail brands, especially across the Americas. Additionally, the tariff environment remains a headwind.
Despite these challenges, LULU is seeing momentum from its Power of Three ×2 growth strategy, which targets a doubling of net revenues to $12.5 billion by 2026, suggesting a rise from the $6.25 billion registered in 2021. The strategy emphasizes growth in underpenetrated international markets and expansion within the men’s apparel segment.
International markets, especially China, present a significant growth opportunity for lululemon. The company is aiming to quadruple its international revenues over time, with a long-term goal of generating nearly 50% of total sales from these markets. In parallel with its physical retail expansion, lululemon is also leveraging its digital capabilities to enhance customer engagement and drive global sales.
Conclusion
No matter how the lululemon stock reacts to its first-quarter fiscal 2025 results, the company’s long-term growth story remains intact, fueled by consistent product innovation, rising global demand, and effective execution of its Power of Three ×2 strategy. While near-term headwinds such as inflation, higher interest rates, tariff uncertainties and softness in the women’s category in the Americas may weigh on margins and performance, these challenges appear to be cyclical rather than structural.
At its core, LULU remains a fundamentally strong business with solid profitability and a forward-thinking strategy. Though the stock’s current valuation may prompt some investors to wait for a more attractive entry point, long-term holders can remain confident. If you already own the LULU stock, staying the course could prove rewarding, as the company’s strategic initiatives and international growth are poised to drive sustained value over time.
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lululemon Q1 Outlook Reflects Measured Optimism: Buy Before Earnings?
lululemon athletica inc. (LULU - Free Report) is likely to witness top and bottom-line growth when it reports first-quarter fiscal 2025 results on June 5, after market close. The Zacks Consensus Estimate for fiscal first-quarter sales is pegged at $2.35 billion, indicating a 6.6% increase from the year-ago quarter's reported figure.
The consensus estimate for the company's fiscal fourth-quarter earnings is pegged at $2.58 per share, suggesting 1.6% growth from the year-ago quarter’s actual. Earnings estimates have been unchanged in the past 30 days. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
The Vancouver-based company has been reporting steady earnings outcomes, as evident from its top and bottom-line surprise trends in the trailing four quarters. lululemon has a trailing four-quarter earnings surprise of 6.6%, on average. Given its positive record, the question is, can LULU maintain the momentum?
Earnings Whispers
Our proven model conclusively predicts an earnings beat for LULU this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
lululemon has an Earnings ESP of +1.82% and a Zacks Rank of 3. You can see the complete list of today's Zacks #1 Rank stocks here.
Key Insights on Trends to Define LULU’s Q1 Results
lululemon is expected to have continued its business momentum in the first quarter of fiscal 2025, showcasing growth across various channels, regions and product categories. This growth is likely to have been driven by positive consumer response to its products, increased in-store traffic and a robust online performance.
LULU is also poised to benefit from the strong business momentum in its international markets, including Mainland China and the Rest of the World, as the brand connects well with customers globally. The company has been on a growth trajectory with its Power of Three x2 growth plan, focusing on product innovation, guest experience and market expansion. Initiatives like community-based events and brand campaigns have been crucial for increasing brand awareness, attracting customers and strengthening brand loyalty. These efforts are expected to have aided the company's fiscal first-quarter performance.
On the last reported quarter’s earnings call, management expressed confidence in the ongoing strength of its international business, particularly in Mainland China. Our model predicts international revenues to increase 2.3% year over year for first-quarter fiscal 2025.
However, lululemon has been facing challenges from the inflationary environment and higher interest rates, leading to soft discretionary spending, and struggles in the women’s category, collectively affecting the Americas business. Despite strong engagement with new products, LULU continues to face headwinds in driving consistent footfall and sales growth in its largest market, underscoring the need for stronger momentum and recovery in North America.
lululemon athletica inc. Price and EPS Surprise
lululemon athletica inc. price-eps-surprise | lululemon athletica inc. Quote
Looming concerns over the ongoing tariff dynamics are expected to have particularly weighed on the company’s margins in the to-be-reported quarter due to elevated costs. On the last reported quarter’s earnings call, management remained skeptical about the effects of the rising tariffs on imports from Mexico and China, and adverse currency rates. The company expected these tariffs to result in higher costs in the first quarter of fiscal 2025 and beyond.
For the first quarter of fiscal 2025, LULU expects the gross margin to be flat year over year, as a modest improvement in the product margin is expected to be offset by deleverage on fixed costs. Markdowns are expected to be relatively flat with the prior-year quarter. SG&A, as a percentage of sales, is expected to deleverage 120 bps year over year, driven by higher foundational investments and associated depreciation, as well as strategic initiatives to enhance brand awareness and support growth. The operating margin for the fiscal first quarter is expected to decline 120 bps year over year.
Our model predicts the adjusted gross margin to contract 50 bps year over year to 57.2% in the fiscal first quarter, with an 80-bps decline in the adjusted operating margin to 18.8%.
The company expects EPS for the fiscal first quarter to be $2.53-$2.58, whereas it reported EPS of $2.54 in the prior-year quarter. EPS is expected to include a negative currency impact of 6 cents per share.
LULU’s Price Performance & Valuation
lululemon’s shares have exhibited a downtrend in the past three months, losing 8.9% compared with the industry’s plunge of 6.9%. Meanwhile, the company has underperformed the Zacks Consumer Discretionary sector and the S&P 500’s growth of 1.6% and 0.5%, respectively.
lululemon’s 3-Month Performance
Image Source: Zacks Investment Research
Despite the fall, the lululemon stock has outperformed industry peer V.F. Corp’s (VFC - Free Report) dip of 47.2% in the past three months. However, the LULU stock has underperformed G-III Apparel (GIII - Free Report) and Guess (GES - Free Report) , which have rallied 6.7% and 15%, respectively, in the past three months.
At its current price of $317.09, the LULU stock trades 40.3% above its 52-week low of $226.01. Moreover, lululemon’s current stock price stands 25.1% below its 52-week high of $423.32.
From the valuation standpoint, the company trades at a forward 12-month P/E multiple of 20.74X, exceeding the industry average of 12.72X.
Image Source: Zacks Investment Research
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 may be hesitant to buy at these elevated levels and prefer to wait for a more favorable entry point.
Investment Thesis
lululemon is currently navigating a range of notable challenges. Elevated inflation and higher interest rates are dampening consumer spending, particularly in the discretionary category, making shoppers more selective. These macroeconomic pressures have created headwinds for luxury retail brands, especially across the Americas. Additionally, the tariff environment remains a headwind.
Despite these challenges, LULU is seeing momentum from its Power of Three ×2 growth strategy, which targets a doubling of net revenues to $12.5 billion by 2026, suggesting a rise from the $6.25 billion registered in 2021. The strategy emphasizes growth in underpenetrated international markets and expansion within the men’s apparel segment.
International markets, especially China, present a significant growth opportunity for lululemon. The company is aiming to quadruple its international revenues over time, with a long-term goal of generating nearly 50% of total sales from these markets. In parallel with its physical retail expansion, lululemon is also leveraging its digital capabilities to enhance customer engagement and drive global sales.
Conclusion
No matter how the lululemon stock reacts to its first-quarter fiscal 2025 results, the company’s long-term growth story remains intact, fueled by consistent product innovation, rising global demand, and effective execution of its Power of Three ×2 strategy. While near-term headwinds such as inflation, higher interest rates, tariff uncertainties and softness in the women’s category in the Americas may weigh on margins and performance, these challenges appear to be cyclical rather than structural.
At its core, LULU remains a fundamentally strong business with solid profitability and a forward-thinking strategy. Though the stock’s current valuation may prompt some investors to wait for a more attractive entry point, long-term holders can remain confident. If you already own the LULU stock, staying the course could prove rewarding, as the company’s strategic initiatives and international growth are poised to drive sustained value over time.