Back to top

Image: Bigstock

Buy Lululemon Stock Ahead of Q4 Earnings After Nike's Strong Showing?

Read MoreHide Full Article

Lululemon (LULU - Free Report) joined Nike (NKE - Free Report) , Apple (AAPL - Free Report) , and other retailers when it closed many of its stores due to the coronavirus. But Nike stock soared over 10% after its reported solid quarterly results on Tuesday.

So should investors think about buying LULU stock with the yoga apparel giant set to report its Q4 fiscal 2019 results after the closing bell on Thursday, March 26?

Quick Nike Recap

Nike topped our Q3 fiscal 2020 earnings estimates on Tuesday, despite the coronavirus impact. The sportswear powerhouse said that its business in the world’s second largest economy has started to rebound as things slowly return to normal in China. NKE executives also said that its growing digital business helped fill some of the void created by store closures in China.

“We are seeing the other side of the crisis in China,” CEO John Donahoe said on Nike’s earnings call. “And due to the resilience and creativity of our team in China, we now have a playbook that we can use elsewhere.”

Nike stock fell over 7% on Monday heading into its earnings release to hover near $62 per share. This downturn was part of a larger 35% decline over the last month that saw Nike trading where it was in late 2017. Then the stock soared a total of 25% during the next two days to close regular trading Wednesday at $79.01 a share.

 

 

 

 

 

LULU

Lululemon is an athleisure giant that has rewarded investors and forced everyone from Gap (GPS - Free Report) to Target (TGT - Free Report) to roll out their own athleisure brands and styles. Along with its successful women’s offerings, LULU has pushed further into outwear and hopes to compete against Canada Goose (GOOS - Free Report) and The North Face (VFC - Free Report) .

Lululemon also sells far more work-appropriate clothing, self-care products, and more. On top of that, executives expect to double the size of its menswear business by 2023. LULU also hopes to more than double its digital revenue and quadruple its international sales, which includes a big push in Asia

Luckily, given the current events, Lululemon’s footprint in Asia remains small today. But things have changed quickly for LULU.

The company closed all stores in North America and Europe starting on March 16, with tentative plans to reopen on March 28—though that seems unlikely given the current coronavirus situation.

Like Nike and all other retailers, Lululemon’s growing digital business remains open. Plus, LULU stock has soared over 40% since March 16, from $138.98 a share to Wednesday’s closing price of $193.62 a share. Despite the climb, LULU stock rests over 25% below its 52-week highs, which could give it more room to run.

Bottom Line

Our current Zacks Estimates call for Lululemon’s Q4 sales to jump 18.4% to reach $1.38 billion. This would mark the slowest growth of 2019, after its revenue climbed over 20% in the trailing three quarters.

On the bottom end of the income statement, LULU’s adjusted earnings are projected jump 21.6% to touch $2.25 a share. The firm’s fourth quarter EPS estimate has remained unchanged and it has topped our quarterly estimates in the trailing four periods.

That said, some risk-taking investors might want to take a chance on Lululemon heading into earnings, especially after Nike’s report impressed Wall Street. But LULU is much smaller than Nike and the closure of its key North American stores won’t show up until its next report, which could hurt its guidance.

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>>