Lululemon: Soft Guidance Pressures Shares, Technical Damage Done

Questions come up in regards to the energy of the patron. Regardless of a wholesome labor with actual wage positive factors, early-year indicators counsel that purse strings are being attended to extra fastidiously.

Earnings reviews from Lululemon Athletica (NASDAQ:LULU) and NIKE (NKE) final week have been notably troubling by way of these companies’ outlook for the steadiness of the 12 months. With Fed Chair Powell now confirmed to be carefully monitoring the state of the employment market, the focus will proceed to be on Retail Gross sales figures and shopper tendencies.

I reiterate my maintain ranking on LULU. I see the once-hot Attire, Equipment, and Luxurious Items business firm as close to truthful worth whereas its technicals present weak spot. Broadly talking, the Shopper Discretionary sector is among the many weakest areas of the S&P 500 thus far this 12 months.

Shopper Shares Wavering Amid Market Energy in 2024

Based on Financial institution of America World Analysis, lululemon is a Vancouver, Canada-based specialty retailer that sells technical, high-quality, and premium-priced athletic attire by its personal shops and web sites. Based in 1998 in Vancouver, Canada, lululemon now has 600 shops in Canada, the U.S., Asia, Europe, and Australia and is poised for vital enlargement.

It was a gradual begin to 2024, as per LULU’s This fall report. Macro pressures have been stated to weigh on the favored attire firm. Stockouts amongst sure merchandise additionally forged destructive stress on earnings. Whereas the agency did beat, issuing fourth-quarter GAAP EPS of $5.29, $0.26 above the consensus estimate with a 16% rise in year-on-year income, it was a tepid outlook that resulted in one of many inventory’s worst post-earnings performances in its historical past. Implied volatility stays lofty close to 30%.

LULU sees Q1 2024 internet income to be within the vary of $2.175 billion to $2.2 billion, beneath the $2.26 consensus. Diluted EPS was additionally guided softly for the quarter that’s underway whereas full-year numbers have been notable gentle. The agency does have a strong pipeline of merchandise together with ongoing penetration into China, which may auger for EPS upside, broader points appear to be on the forefront of analysts and buyers. It will likely be key to observe gross sales tendencies in its footwear assortment, which has been well-received to this point.

On valuation, analysts at BofA see earnings progress slowing to simply 10% this 12 months after greater than 20% annualized progress in FY 2023 and 2024. Out-year EPS is seen surpassing $15 whereas 2027 non-GAAP per-share earnings might strategy $18. With low-teens EPS progress now the brand new norm, we should rethink the valuation, however gross sales progress is forecast to hum alongside within the 10% to 13% vary.

Lululemon: Earnings, Valuation, Free Money Stream Forecasts

If we assume normalized EPS progress of 12% and assume the inventory’s historic PEG ratio close to 2.4, then a 28x to 29x P/E is acceptable. Based mostly on anticipated working EPS over the subsequent 12 months of $14.50, then we’re speaking a couple of low $400s inventory as we speak, not too removed from truthful worth.

LULU: Valuations Flip Decrease, Stay At a Premium

In comparison with its friends, LULU incorporates a premium valuation, however nonetheless robust high and bottom-line progress stays relatively engaging. Profitability tendencies have been robust, however the weak set of steering figures in the latest quarterly report forged shade on how earnings and free money stream will confirm over the durations forward. EPS revisions have turned weaker whereas share-price momentum has inflected decrease whereas some old-school retailers, like Hole (GPS) and Abercrombie & Fitch (ANF) soar.

Competitor Evaluation

Wanting forward, company occasion information offered by Wall Avenue Horizon present an unconfirmed Q1 earnings date of Thursday, Could 30 AMC. The corporate can even report same-store gross sales information that night.

Company Occasion Danger Calendar

The Technical Take

With shares close to the place I see truthful worth, LULU’s momentum has plummeted. Discover within the chart beneath that after notching an all-time excessive above $500 late final 12 months, the inventory fell beneath the earlier peak from November 2021. That makes for a possible bearish false breakout. “From false strikes come quick strikes,” as technicians are wont to say. I see help within the $355 to $360 vary, however the breakdown underneath the long-term 200-day transferring common is a destructive signal.

The 200dma had been a degree of shopping for since June of final 12 months earlier than the This fall report. The bulls have been unable to muster a lot of a bounce again after the bearish preliminary response to the quarterly numbers, resulting in an RSI momentum studying now underneath 30 for the primary time since a share-price drop round earnings in Could final 12 months. A niche now lingers just below $500, so if tendencies enhance, an air pocket on the chart could possibly be a chance for the bulls. With shares now again into the consolidation vary from 2022 by a lot of final 12 months, I count on a battle between the bulls and bears to ensue.

For now, the chart is damaged within the brief run with help within the mid-$300s.

LULU: Bearish False Breakout, Help within the Mid-$300s

The Backside Line

I reiterate a maintain ranking on LULU. I see the inventory near intrinsic worth whereas its technicals took a serious blow post-earnings final week and as promoting stress has continued this week.