Lululemon Reports Solid Quarter and Raises Guidance

Lululemon Athletica Inc. (Ticker Symbol: LULU) released its quarterly earnings report this week that was better than analysts were expecting.  The Vancouver, Canada-based company reported an earnings per share beat of .96 cents per share vs. .89 cents per share Wall Street analysts’ were looking for.  Additionally, Lululemon reported a revenue beat of $883.35 million vs. $846.83 million that Wall Street analysts were expecting.  The company also reported same-store sales growth that increased by 15% vs. 12.2% growth increase that Wall Street was looking for.

The athletic apparel company also raised its full-year revenue and earnings per share guidance.  Lululemon now expects its full-year net revenue to be between $3.80 billion and $3.84 billion, which is up from its prior forecast of $3.73 billion to $3.77 billion. The company also increased its full-year earnings per share to be in a range between $4.63 and $4.70 per share, which is increased from the prior range of $4.51 to $4.58.  North American revenues were up 21% and its men’s business was the standout for the quarter outperforming the growth of its women’s apparel unit.

The image above is roughly a two-year chart of Lululemon’s stock.  In the first and second quarters of 2018, Lululemon was stuck within a horizontal channel between the prices of $75.00 and $85.00.  Horizontal channels are usually viewed as areas of indecisiveness between buyers and sellers and at a point where supply and demand are usually relatively balanced.  The stock had a positive earnings release, which enabled the stock to break out through its prior range. Lululemon had two more positive earnings releases in the second and third quarters of 2018, giving it the positive catalysts it needed to continue its rally.  In the first three quarters in 2018, Lululemon rallied over 100% for the year, before finding resistance around the $165.00 price level.

In the third quarter of 2018, the stock topped forming a bearish divergence pattern (as indicated on the chart by the red lines) where the stock makes a higher high in price but the Relative Strength Index makes a lower high. 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. Lulumenon’s stock proceeded to sell off nearly 50%, giving back nearly half of its previous move. 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 $60.00 and found some technical support at its 100-day moving average. The stock traded to an all-time high on September 6th at a price of $204.44.

(Chart above courtesy of ​​)

Based on a survey of 25 analysts offering 12-month price targets, the average price target for Lululemon’s stock is $202.57. According to that number, the stock is priced right in line with Wall Street’s analysts’ average price targets and could be considered at value around current levels near $202.43.

Lululemon is going to remain focused on its five-year growth plan of doubling men’s and digital revenues and quadrupling international revenues. Shareholders in Lululemon continue to be rewarded through their incredible capital appreciation that has occurred over the past three years.

Investors in the athletic apparel space should look to Nike’s (Ticker Symbol: NKE) earnings release on September 24th for fresh news within the sector.