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Why Investors Should Be Wary of Lululemon's Q1 Earnings
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Shares of Lululemon (LULU - Free Report) were up more than 11.5% through the early afternoon trading hours Friday after the luxury “athleisure” apparel maker posted better-than-expected earnings. Of course, any positive news in the current retail landscape is encouraging, but LULU’s double-digit gains seem a bit drastic given the full context of today’s report.
Lululemon was able to post adjusted earnings of 32 cents per share, which was up slightly from the 30 cents earned in the prior-year quarter and above the Zacks Consensus Estimate of 28 cents. Total sales came in above expectations as well, with revenues of $520.3 million topping our consensus estimate of $513 million (also read: Lululemon Tops Q1 Earnings, Plans ivivva Remodeling).
At face value, these top and bottom line results seem impressive. But it would be short-sighted to forget that these beats are coming after Lululemon lowered its first-quarter guidance in its previous report. Remember those fourth-quarter results that sent the stock tumbling more than 17%? Yeah, that also included projections for Q1 revenues in the range of $510-$515 million.
Call me cynical, but I’m not getting too excited about revenues that slightly topped these expectations—which were shockingly-low in the first place. What’s more, Lululemon’s disappointing results in the fourth quarter were blamed on a miscalculation of product trends that resulted in less-than-excited customers. Sure, that’s a seasonal issue, but it could speak to a problem with management that might repeat itself.
Shifting back to today’s report, Lululemon’s story is not too far off from the rest of the luxury retail industry, which has been punished by investors throughout this earnings season. Indeed, the company said in-store comps were down 2%--while also reiterating its desire to push its e-commerce business.
In fact, in what I consider to be one of the objective bright spots from today’s report, Lululemon announced that it plans to evolve ivivva, its activewear brand, into an e-commerce focused business. The company will shutter 40 of the 55 total ivivva stores and convert half of the leftovers into lululemon-branded stores, leaving just eight brick-and-mortar ivivva locations. Like many of its industry peers, Lululemon has decided to trim the fat from its businesses.
Looking ahead, Lululemon expects second-quarter revenues in the range of $565-$570 million. While this is slightly above our current consensus estimate of $563 million, it also doesn’t paint the full guidance picture. The company also updated its full-year revenue guidance to $2.53-$2.58 billion, down from the previous forecast of $2.55-$2.60 billion and on the low end of our consensus estimates.
And let’s not forget, before today’s report, shares of LULU were down more than 25% year-to-date. Furthermore, the company has been the target of buyout rumors for years, and that has led to price volatility whenever the rumors come and go (also read: Amid Buyout Whispers, Should Lululemon (LULU - Free Report) Finally Sell?).
Today’s report was good, not great. The stock moving higher is no surprise. But nearly 12%? I’m not sold.
For more of this week’s hottest news from the investment and financial worlds, be sure to check out the latest episode of the Zacks Friday Finish Line podcast:
Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
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Why Investors Should Be Wary of Lululemon's Q1 Earnings
Shares of Lululemon (LULU - Free Report) were up more than 11.5% through the early afternoon trading hours Friday after the luxury “athleisure” apparel maker posted better-than-expected earnings. Of course, any positive news in the current retail landscape is encouraging, but LULU’s double-digit gains seem a bit drastic given the full context of today’s report.
Lululemon was able to post adjusted earnings of 32 cents per share, which was up slightly from the 30 cents earned in the prior-year quarter and above the Zacks Consensus Estimate of 28 cents. Total sales came in above expectations as well, with revenues of $520.3 million topping our consensus estimate of $513 million (also read: Lululemon Tops Q1 Earnings, Plans ivivva Remodeling).
At face value, these top and bottom line results seem impressive. But it would be short-sighted to forget that these beats are coming after Lululemon lowered its first-quarter guidance in its previous report. Remember those fourth-quarter results that sent the stock tumbling more than 17%? Yeah, that also included projections for Q1 revenues in the range of $510-$515 million.
Call me cynical, but I’m not getting too excited about revenues that slightly topped these expectations—which were shockingly-low in the first place. What’s more, Lululemon’s disappointing results in the fourth quarter were blamed on a miscalculation of product trends that resulted in less-than-excited customers. Sure, that’s a seasonal issue, but it could speak to a problem with management that might repeat itself.
Shifting back to today’s report, Lululemon’s story is not too far off from the rest of the luxury retail industry, which has been punished by investors throughout this earnings season. Indeed, the company said in-store comps were down 2%--while also reiterating its desire to push its e-commerce business.
In fact, in what I consider to be one of the objective bright spots from today’s report, Lululemon announced that it plans to evolve ivivva, its activewear brand, into an e-commerce focused business. The company will shutter 40 of the 55 total ivivva stores and convert half of the leftovers into lululemon-branded stores, leaving just eight brick-and-mortar ivivva locations. Like many of its industry peers, Lululemon has decided to trim the fat from its businesses.
Looking ahead, Lululemon expects second-quarter revenues in the range of $565-$570 million. While this is slightly above our current consensus estimate of $563 million, it also doesn’t paint the full guidance picture. The company also updated its full-year revenue guidance to $2.53-$2.58 billion, down from the previous forecast of $2.55-$2.60 billion and on the low end of our consensus estimates.
And let’s not forget, before today’s report, shares of LULU were down more than 25% year-to-date. Furthermore, the company has been the target of buyout rumors for years, and that has led to price volatility whenever the rumors come and go (also read: Amid Buyout Whispers, Should Lululemon (LULU - Free Report) Finally Sell?).
Today’s report was good, not great. The stock moving higher is no surprise. But nearly 12%? I’m not sold.
For more of this week’s hottest news from the investment and financial worlds, be sure to check out the latest episode of the Zacks Friday Finish Line podcast:
Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>