Case Study: Lululemon (LULU) stock according to high performing analysts

Key Points

Performance

Lululemon shares rose by 15.75% this week, pushing their year-to-date gains up to 12.62%. This compares favorably to the S&P 500 which is up by 7.46% on a year-to-date basis thus far.

Event & Impact

LULU posted its 2022 fourth quarter results this week, beating Wall Street estimates on both the top and bottom lines. During Q4, LULU’s revenue totaled $2.8 billion, beating Wall Street’s consensus estimate by $100 million. Lululemons Q4 non-GAAP earnings-per-share came in at $4.40, beating Wall Street’s consensus estimate by $0.14/share. 

Noteworthy News:

Lululemon posted strong demand figures, highlighting double digit sales growth amongst key demographics, including its high margin direct-to-consumer segment.  Also, according to Placer.ai, LULU saw a 23.2% increase in year-over-year foot traffic during January, setting the stage for a strong 2023 in the face of inflationary headwinds.  


Nobias Insights

75% of recent articles published by credible authors focused on LULU shares offer a “bullish” bias.  4 out of the 5 credible Wall Street analysts who cover LULU believe shares are likely to fall in value. The average price target applied to LULU by these credible analysts is $430.00, which implies upside potential of approximately 18.1% relative to the stock’s current share price of $364.19.

 

Bullish Take

Salman Ahmad, a Nobias 5-star rated author, said, “As stubbornly high prices for essential goods are forcing customers to cut down on discretionary purchases such as apparel, wealthy shoppers continue to spend on Lululemon’s tops, yoga pants, and shorts, bolstering both their online and in-store traffic both as a result of stubbornly high prices.”

Bearish Take

Julia Waldow, a Nobias 4-star rated author, highlighted the company’s Q4 inventory levels, stating, “Lululemon had $1.4 billion in product, a 50% increase from the same time a year ago.”

LULU Mar 2023

Lululemon (LULU) posted Q4 earnings this week, beating Wall Street’s expectations on both the top and bottom lines.  These strong results caused shares to rally by 15.75% this week.  This outsized weekly rally pushed LULU’s year-to-date returns into positive territory.  Now, thus far through 2023, the apparel name has produced price gains of 12.62%.  This beats the broader market by a wide margin; on a year-to-date basis the S&P 500 is now up by 7.46%.  

Bullish Nobias Credible Analysts Opinions:

Nobias 4-star rated author, Marianne Wilson, wrote an earnings recap article this week and in her piece, she provided more color on the company’s sales breakdown.  Wilson said,  “Total comparable sales increased 27%. Comparable store sales rose 15%, while direct-to-consumer net revenue increased 37%.”

Julia Waldow, a Nobias 4-star rated author, covered LULU’s Q4 earnings results in an article that she published at Modern Retail this week Looking at the company’s top-line results, Waldow said, “On Tuesday, the company reported yet another strong batch of earnings, clocking $2.8 billion in fourth-quarter net revenue, a 30% increase over the same time a year ago.” “Its full-year revenue — which covers the 12 months ending Jan. 29, 2023 — also jumped 30% year-over-year to hit $8.1 billion,” she continued. 

In her piece, Waldow touched upon LULU’s relatively strong execution figures during a quarter where other significant names in the apparel industry struggled.  She wrote, “While its rivals like Adidas have issued profit warnings or less rosy results, Lululemon has enjoyed several quarters of solid growth, in large part due to its product strategy.”

Regarding that product strategy, Waldow stated, “In 2021, Lululemon concentrated on building out its men’s offerings, such as workout apparel and accessories, and last March, it expanded into footwear with Blissfeel, a women’s sneaker collection.”

Salman Ahmad, a Nobias 5-star rated author, continued along these lines in his post-earnings report at CTN News this week, stating, “As stubbornly high prices for essential goods are forcing customers to cut down on discretionary purchases such as apparel, wealthy shoppers continue to spend on Lululemon’s tops, yoga pants, and shorts, bolstering both their online and in-store traffic both as a result of stubbornly high prices.”

Ahmad highlighted LULU’s forward guidance, which points towards continued growth ahead.  “In a statement, the company said it expects revenue for its fiscal 2023 to be between $9.30 billion and $9.41 billion, compared to the average estimate of analysts of $9.14 billion, according to data from Refinitiv IBES,” Ahmad wrote.   He continued, “A full-year profit estimate for Lululemon is expected to range from $11.50 to $11.72 per share, compared with analysts’ estimates of $11.26 per share for the full year.”

Both of these forward guidance levels represent double digit growth compared to 2022’s $8.1 billion sales result and LULU’s 2022 EPS of $10.07.  Since LULU’s Q4 earnings results three credible analysts have raised their price targets for the company’s shares.  

According to The Fly on the Wall, “Stifel analyst Jim Duffy raised the firm's price target on Lululemon to $460 from $450 and keeps a Buy rating on the shares. The company's "strong" FY23 outlook topped consensus and fiscal Q1 guidance endorses brand momentum and suggests potential for upside as the year unfolds, the analyst tells investors. "Bearish discourse around slowing growth and promotional risk to margin has been silenced," contends the firm, which reaffirms its conviction in Lululemon as a core growth holding.”  Duffy carries a 4-star Nobias rating.  

The Fly on the Wall also stated, “TD Cowen raised the firm's price target on Lululemon to $500 from $470 and keeps an Outperform rating on the shares. The analyst said markdown fears should be allayed as lululemon reported upside to Q4 and management's 2023 guidance suggests above consensus modeling of sales, gross margin and EPS.” John Kernan is the analyst who published this report and he is a Nobias 4-star rated analyst.  

Lastly, The Fly on the Wall notes, “Guggenheim raised the firm's price target on Lululemon to $440 from $400 and keeps a Buy rating on the shares following the company's Q4 beat. Guggenheim continue [sic] to believe that China holds significant growth potential for Lululemon as the region reopens. The firm also believes demand for Lululemon's merchandise, along with its brand, remains "healthy and strong" as competitive pressures from emerging athletic brands are overestimated.” The Guggenheim analyst who covers LULU is Robert Drbul and is a Nobias 5-star rated analyst.  

Bearish Nobias Credible Analysts Opinions:

While Julia Waldow’s coverage of LULU’s Q4 earnings results in the article was overall bullish, she added “Lululemon’s latest earnings also shed light on how the company is progressing on its “Power of Three x2” growth plan, which calls for the business to double overall revenue, double men’s sales, double DTC sales and quadruple international net revenue from 2021 to 2026,”

Looking at 2022 results, Waldow points out that, “Fifty-two percent of Lululemon’s fourth-quarter revenue came from online, direct-to-consumer sales”.  “Lululemon’s international revenue increased 35% during the fourth quarter,” she noted.  

Like its peers, Lululemon continues to struggle with high inventory levels created by post-pandemic supply chain inefficiencies. 

Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.

 “At the end of its fourth quarter,” she said, “Lululemon had $1.4 billion in product, a 50% increase from the same time a year ago. This is, however, an improvement from the third quarter, when Lululemon reported $1.7 billion in product, an 85% increase from a year before.” But, as Waldow points out, demand for its products continues to rise. “Lululemon had 655 stores at the end of its fourth quarter and, according to data from Placer.ai, saw a 23.2% increase in year-over-year foot traffic during January,” she said.  

Overall bias of Nobias Credible Analysts and Bloggers:


Overall, 4 out of the 5 credible analysts who cover LULU shares believe that they’re likely to increase in value. Currently, the average price target being applied to LULU shares by these analysts is $430.00.  Relative to the stock’s current share price of $364.19, that price target implies upside potential of approximately 18.1%.  

The credible author community that Nobias tracks has expressed similarly bullish sentiment.  75% of recent articles published by credible authors on Lululemon have expressed a “Bullish” bias.   

Disclosure: Nicholas Ward has no LULU position.  Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

 

Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.

Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.

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