Despite a surge on Friday, Lulu's stock continues to witness a decrease of 20% so far this year.
Despite a surge on Friday, Lulu's stock continues to witness a decrease of 20% so far this year.
Lululemon (NASDAQ: LULU) saw a 16% surge on December 9, 2023, following its stellar Q3 results and raised yearly projections. However, the athletic apparel giant's share price is 20% lower this year, trading around $400 from its original $500 at the start. Meanwhile, Nike's stock (NYSE: NKE) has dropped 27% since the year's beginning.
Lululemon faced tough times in 2024, after its Chief Product Officer left and consumer preferences shifted. The company encountered hurdles such as a mismanaged product launch and falling short of customer demand for certain colors and sizes. Despite these setbacks, Lululemon continues to grow, albeit at a slower pace, and faces escalating competition in the market from the likes of Nike, Athleta, Vuori, and Alo Yoga.
Even with recent difficulties, Lululemon delivered a stellar Q3 performance, beating revenue and profit expectations. JPMorgan, a top performer, has gained 48% year-to-date. For further details, check out JPMorgan's Stock Performance.
Lululemon reported a Q3 profit of $2.87 per share, a 18-cent increase from the previous year's quarter, and 18 cents above predictions. The gain was driven by a 9% revenue increase to $2.4 billion, slightly exceeding forecasts. The gross margin expanded more than anticipated, rising by 150 basis points to 58.5%, surpassing analysts' 57.5% projections. Company-wide comparable sales increased 4% during the quarter, beating market estimates of 3.2% growth. As a result, Lululemon's stock soared 9.2% (post-market) on December 5, 2024, while the S&P 500 index saw a 0.2% decrease.
We anticipate Lululemon's revenues to reach $10.4 billion for fiscal 2024, a 9% annual increase. Looking at the bottom line, we now estimate earnings per share at $14.12. Based on these revised figures, we've adjusted Lululemon's valuation to $321 per share for fiscal 2024, a near 20% reduction from the current market price.
Lululemon's stock returns over the past 3 years have been erratic, contrasting with the S&P 500's stability. The stock yielded 12% in 2021, lost 18% in 2022, and soared 60% in 2023. In comparison, the Trefis High-Quality Portfolio, consisting of 30 select stocks, has demonstrated lower volatility. Surprisingly, the portfolio has outperformed the S&P 500 each year during the same period.
Why is this so? The HQ Portfolio delivers better returns with reduced risk compared to the benchmark index, providing a smoother journey, as illustrated by HQ Portfolio Performance Metrics. Given the present unpredictable macroeconomic climate with potential rate cuts and multiple conflicts, might Lululemon endure a 2021-like underperformance against the S&P for the upcoming 12 months - or will it stage a comeback?
Lululemon recorded a 2% y-o-y sales increase in the Americas and an explosive 33% y-o-y growth in international sales, fueled by China's strength. Its comp sales were boosted by a 25% surge in international comp sales, partially offset by a 2% decrease in Americas comp sales. Despite this, the Americas remain Lululemon's primary market, with international sales still representing a minor portion of its total revenue. Lululemon upped its operating margin by 520 basis points to 20.5%.
For the pivotal holiday shopping quarter, Lululemon expects revenue between $3.48 billion and $3.51 billion, representing a 8%-10% increase from the previous year. It forecasts earnings per share to range between $5.56 and $5.64 during Q4. For the entire fiscal 2024, Lululemon anticipates revenue to range between $10.45 billion and $10.49 billion, compared to its previous anticipation of $10.38 billion to $10.48 billion. Earnings per share are predicted to fall between $14.08 and $14.16 for the fiscal year.
Lululemon's price-to-earnings (P/E) ratio increased from roughly 42 times at the end of its 2021 financial year (FY) to 47 times at the end of its 2022 FY. However, the ratio dipped to around 40 times at the conclusion of its 2023 FY. Interestingly, Lululemon's present 27x levels are 33% less than its 2023 FY levels. In other words, LULU shares are currently trading at a discount compared to standard average prices.
Lululemon's operating margins, hovering around 20%, exceed those of its rivals such as Nike and On Holding. Lululemon has only barely begun to tap into its male category, which has played a significant role in boosting sales. Moreover, the company's international business, which accounts for just 21% of its overall business, remains untapped and presents a substantial growth opportunity.
It's insightful to view how other competitors perform. For comprehensive comparisons among various corporations across industries, check out *Lululemon's Peers at Peer Comparisons*.
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Despite the challenges faced in 2024, Lululemon's Q3 revenue surpassed expectations, contributing to a 9.2% increase in its stock price. According to JPMorgan's analysis, Lululemon's valuation was adjusted downwards to $321 per share for fiscal 2024, despite the company's strong performance.
In light of Lululemon's robust revenue growth and market-beating performance, its lulu revenue and lulu valuation remain key areas of interest for investors and analysts alike.