Lululemon’s Inventory Down 34% YTD, What’s Occurring?

After a 34% decline thus far this yr, on the present worth of round $336 per share, we consider Lululemon (NASDAQ: LULU), an organization designing and promoting athletic and informal attire – may probably bounce again in the long run. LULU noticed a stellar efficiency in FY 2023 (ended Jan. 28). The corporate’s income elevated 19% year-over-year (y-o-y) in fiscal 2023 to $9.6 billion, with comparable gross sales up 13%. The corporate’s gross margin jumped to 58% in FY’23 from 55% in FY’22, and the working revenue margin soared to 22% from 16% in FY’22. Consequently, its adjusted earnings per share (EPS) additionally elevated from $10.07 in 2022 to $12.77 in 2023. Regardless of this spectacular efficiency, the corporate’s inventory is considerably down this yr resulting from lower-than-expected Q1 2024 steering. For FQ1, administration guided for a y-o-y income progress of 9% to 10%, and adjusted EPS progress of three% to five%. Compared, LULU noticed a 24% y-o-y progress in revenues and a 54% y-o-y improve in profitability final yr in Q1 2023. The softness within the U.S. market and deliberate elevated spending to develop model consciousness have resulted in a weaker outlook. Nonetheless, it was identified that the retailer’s profitability will decline together with that slowing gross sales efficiency earlier than rebounding over the subsequent a number of quarters and for the complete 2024 yr. The corporate’s administration continues to be guiding for double-digit progress for the complete yr between 11- 12%, and the underside line is to develop 10% to 11% y-o-y. Present working circumstances aren’t very favorable, and the steering displays solely that somewhat than its precise efficiency.

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 28x ranges, stay 30% decrease than the degrees of FY 2023. That mentioned, LULU inventory is buying and selling at a reduction – in comparison with historic averages, however much like Nike (~ P/E of 27x). That mentioned, LULU’s working margins are unmatched by its opponents, together with Nike and On Holding. Lululemon has barely scratched the floor of its males’s class, which has been a significant booster for gross sales. The worldwide enterprise (which accounts for under 21% of its enterprise) can also be underpenetrated and has a very lengthy runway for progress.

LULU inventory has seen little change, transferring barely from ranges of $350 in early January 2021 to round $336 now, vs. a rise of about 35% for the S&P 500 over this roughly 3-year interval. General, the efficiency of LULU inventory with respect to the index has been lackluster. Returns for the inventory have been 12% in 2021, -18% in 2022, and 60% in 2023. Compared, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that LULU underperformed the S&P in 2021. In truth, persistently beating the S&P 500 – in good instances and dangerous – has been tough over latest years for particular person shares; for heavyweights within the Client Discretionary sector together with AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In distinction, the Trefis Excessive High quality (HQ) Portfolio, with a group of 30 shares, has outperformed the S&P 500 annually over the identical interval. Why is that? As a gaggle, HQ Portfolio shares offered higher returns with much less danger versus the benchmark index; much less of a roller-coaster trip as evident in HQ Portfolio efficiency metrics. Given the present unsure macroeconomic atmosphere with excessive oil costs and elevated rates of interest, may LULU face an identical scenario because it did in 2021 and underperform the S&P over the subsequent 12 months – or will it see a powerful bounce?

We forecast Lululemon’s Revenues to be $10.8 billion for the fiscal yr 2024, up 12% y-o-y. Trying on the backside line, we now forecast the earnings per share to come back in at $14.09. Given the modifications to our revenues and EPS forecast, now we have revised our Lululemon Valuation to $432 per share, based mostly on a $14.09 anticipated EPS and a 30.6x P/E a number of for the fiscal yr 2024 – nearly 29% larger than the present market worth.

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

[1] Returns as of 4/15/2024
[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 writer and don’t essentially mirror these of Nasdaq, Inc.