Lululemon Posts Strong Earnings

Lululemon Athletica (Ticker Symbol: LULU) released its earnings report after the closing bell on Wednesday. The athletic apparel maker announced better than expected earnings on the top and bottom line.  Lululemon reported an earnings per share beat of .74 cents per share vs. Wall Street analysts’ expectations of .70 cents per share. In addition, Lululemon’s net revenue beat Wall Street’s expectations, reporting a revenue of $782 million vs. analysts’ estimates of $755 million.  The company also raised its full-year guidance and now expects earnings per share to be between $4.51 and $4.58, and revenue between $3.73 billion and $3.77 billion.

Lululemon has expanded from its original “​athleisure” yoga pants to sell men’s and women’s clothing, shoes, and accessories. They are beginning to compete with high-end brands like The North Face, Columbia, and Canada Goose.  Lululemon’s Chief Executive Officer Calvin Mcdonald stated that he was optimistic about future opportunities within the company and that Lululemon is going to focus on its five-year growth plan of doubling men’s and digital revenues and quadrupling international revenues.

Above is a two-year chart of Lululemon’s stock.  Early in the first quarter of 2018, Lululemon had a solid earnings report, sending it right through a 4-month long horizontal channel. Lululemon had two more positive earnings releases in the second and third quarters of 2018, giving it three very strong earnings performances in a row.  In the first three quarters in 2018, the stock rallied over 100% for the year.  Lululemon pulled back in the fourth quarter of 2018, giving back around half of its gains while still finishing for the year up over 50%.

In the third quarter, the stock bottomed, forming a bullish divergence pattern, as indicated on the chart by the purple squares, where the stock makes a lower low in price but the Relative Strength Index makes a higher low. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in Lululemon’s case. In the first quarter of this year, Lululemon broke through the downtrend it established after it peaked in 2018. The stock proceeded to rally over $50.00 and found some technical support just above the 100-day Moving Average. The stock traded to an all-time high Thursday morning of $182.89.

(Chart above courtesy of ​​)

Based on a survey of 26 analysts offering 12-month price targets, the average price target for Lululemon’s stock is $193.82.   According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $179.75.

Lululemon signed NFL quarterback Nick Foles as its first male brand ambassador in an attempt to compete with more traditional sportswear brands like Nike and Under Armour. Long term shareholders in Lululemon have continued to be rewarded for holding the stock. Investors in the athletic apparel space should look to Nike’s (Ticker Symbol: NKE) earnings release on June 27th for fresh news within the sector.