Lululemon Earnings Preview

Lululemon Athletica (Ticker Symbol: LULU) reports after the bell on Wednesday afternoon. The athletic apparel maker has had a wonderful start to 2019, and year to date the stock is up nearly 25%.  According to yahoo finance, Wall Street analysts’ are looking for just under a 25% increase in revenues to $1.15 billion and an increase in earnings per share of $1.74. Simon Siegel an analyst at Nomura, downgraded the stock to neutral, stating that he feels the most of the positive news is already priced into the stock’s value.  

Lululemon has expanded from its original “athleisure” yoga pants, to sell men and women’s clothing, shoes and accessories. They are beginning to compete with high ends brands like The North Face, Columbia, and Canada Goose.  Lululemon signed Super Bowl Champion Nick Foles as its first male brand ambassador in an attempt to compete with more traditional sportswear brands like Nike and Under Armor.

Lululemon had one of its best years on record in 2018.  Early in the first quarter of 2018, Lululemon had a monster earnings release, sending it skyrocketing through a seven-year horizontal channel. Lululemon had two more positive earnings releases with positive guidance in the second and third quarter of 2018, giving it three very strong earnings performances in a row.  At one point it 2018, the stock rallied had over 100% for the year ticking an all-time high on October 1st, 2018 at $164.79.

The stock pulled back in the fourth quarter of 2018 giving back around half of its gains while still finishing for the year up over 50%. Lululemon found a bottom at the end of December 2018, helped by a bullish divergence, (Lower low in price, higher lower in the Relative Strength Index)

(Chart above courtesy of ​​)

Based on a survey of 15 analysts offering 12-month price targets, the average price target for Lululemon’s stock is $171.46.  Based on that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near 146.58.

Lululemon’s IPO was July 23rd, 2007 at $12.50. Above is a longer-term weekly chart of Lululemon. Highlighted in purple is the seven-year-long horizontal channel that it broke out of in early 2018.  At the close Monday, the stock was trading up over 1000% from its IPO.   As you can see long term investors have been very rewarded by holding the stock.  This afternoon they report earnings so we will see if Lulu can keep the fire blazing for investors.