Lululemon Inventory Down 22% This 12 months, What’s Subsequent?

Lululemon (NASDAQ: LULU) inventory surged 16% on Friday, December 9, after the corporate posted better-than-expected outcomes for its fiscal third quarter, and raised its outlook for the 12 months. Regardless of this sharp uptick, the athletic and informal attire firm’s inventory is down 20% thus far this 12 months at its present stage of round $400 from the $500 determine it was at first of the 12 months.Compared, LULU’s peer Nike’s inventory (NYSE: NKE) is down 26% for the reason that starting of this 12 months. After a outstanding FY 2023, Lululemon’s inventory confronted vital headwinds in 2024, pushed by the departure of its Chief Product Officer and adjustments in client conduct. Lululemon’s development was hindered by its errors, together with a high-profile product launch misfire earlier in 2024 and failure to fulfill buyer demand for sure colours and sizes. Whereas Lululemon continues to develop, its tempo has slowed from final 12 months, and the model faces heightened competitors out there. The corporate faces rising competitors from established manufacturers like Nike and Athleta, and newer entrants Vuori and Alo Yoga.

Regardless of latest challenges, Lululemon delivered a powerful Q3 efficiency, surpassing top-line and bottom-line estimates. Lululemon earned a revenue of $2.87 per share in Q3, up from $1.96 in the identical quarter final 12 months and 18 cents above expectations. The elevated revenue got here on a 9% acquire in income to $2.4 billion, barely above estimates. In the course of the third quarter, gross margin grew greater than anticipated, rising by 150 foundation factors to 58.5%, additionally forward of the 57.5% that analysts had anticipated. Its company-wide comparable gross sales rose 4% in the course of the quarter, beating market estimates of three.2% development.

We forecast Lululemon’s Revenues to be $10.4 billion for the fiscal 12 months 2024, up 9% y-o-y. Trying on the backside line, we now forecast the earnings per share to return in at $14.12. Given the adjustments to our revenues and EPS forecast, we have now revised our Lululemon Valuation to $321 per share, primarily based on a $14.12 anticipated EPS and a 22.7x P/E a number of for the fiscal 12 months 2024 – virtually 20% decrease than the present market worth.

The rise in LULU inventory over the past 3-year interval has been removed from constant, with annual returns being significantly extra unstable than the S&P 500. Returns for the inventory have been 12% in 2021, -18% in 2022, and 60% in 2023. In distinction, the Trefis Excessive High quality (HQ) Portfolio, with a group of 30 shares, is significantly much less unstable. And it has outperformed the S&P 500 annually over the identical interval.

Why is that? As a bunch, HQ Portfolio shares offered higher returns with much less threat versus the benchmark index; much less of a roller-coaster trip as evident in HQ Portfolio efficiency metrics. Given the present unsure macroeconomic surroundings round fee cuts and a number of wars, may LULU face an analogous scenario because it did in 2021 and underperform the S&P over the subsequent 12 months – or will it see a powerful leap?

In Q3, Lululemon’s gross sales grew 2% y-o-y within the Americas and worldwide gross sales shot up by 33% y-o-y on energy in China. The corporate’s comp gross sales have been pushed by 25% development in Worldwide comp gross sales partially offset by a decline of two% in Americas comp gross sales. Nonetheless, the Americas stay Lululemon’s largest market, and worldwide remains to be a fraction of its general income. LULU’s working margin grew 520 foundation factors to twenty.5%.

For the all-important vacation buying quarter, Lululemon is anticipating income to be between $3.48 billion and $3.51 billion, representing development of 8% to 10% from the prior 12 months. It additionally expects earnings per share to be between $5.56 and $5.64 in This autumn. For the complete 12 months 2024, Lululemon expects fiscal 2024 income to return in between $10.45 billion and $10.49 billion, in comparison with earlier steering of between $10.38 billion and $10.48 billion. It anticipates earnings per share to be between $14.08 and $14.16 for the complete 12 months.

Lululemon’s P/E ratio grew from about 42x on the finish of FY 2021 to 47x on the finish of FY 2022. Whereas the ratio declined to round 40x on the finish of FY 2023, the corporate’s present 29x ranges, stay 28% decrease than the degrees of FY 2023. That mentioned, LULU inventory is buying and selling at a reduction – in comparison with historic averages.  LULU’s working margins of ~20% are unmatched by its opponents, together with Nike and On Holding. Lululemon has barely even scratched the floor of its males’s class, which has been a significant enhance for gross sales. The worldwide enterprise (which accounts for less than 21% of its enterprise) can also be under-penetrated and has a very lengthy runway for development.

It’s useful to see how its friends stack up. Try how Lululemon’s Friends fare on metrics that matter. You will discover different priceless comparisons for corporations throughout industries at Peer Comparisons.

[1] Returns as of 12/9/2024
[2] Cumulative whole returns for the reason that finish of 2016

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The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.