lululemon athletica inc. LULU has seen its shares rally 17.4% since reporting solid third-quarter fiscal 2024 results on Dec. 5, 2024. Meanwhile, the broader industry has returned 6.3%, and the Consumer Discretionary sector has declined 1% in the same period.
lululemon delivered strong results in the fiscal third quarter, showcasing its resilience and global growth. The company has maintained momentum across its international markets and in Canada, highlighting its robust performance. Looking ahead, lululemon is encouraged by the positive start to the holiday season and remains committed to accelerating its U.S. business while expanding brand awareness worldwide.
At the current price of $404.79, the LULU stock trades at a 21.6% discount from its 52-week high of $516.39. This indicates that the stock has further upside potential.
LULU Stock Performance
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Furthermore, LULU trades above its 50 and 200-day moving averages, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in lululemon’s financial health and prospects.
LULU Stock Trades Above 50 and 200-Day Moving Average
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Let’s further review lululemon’s third-quarter results, outlook and other factors to assess if the stock presents a buying opportunity after the rally.
In the third quarter of fiscal 2024, lululemon reported revenue and earnings growth, beating expectations. Earnings per share (EPS) rose 13.4% year over year, while net sales advanced 8.7%. On a constant-dollar basis, net revenues improved 8% year over year in the fiscal third quarter. Total comparable sales (comps) rose 4% year over year and 3% on a constant-dollar basis.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
The company’s top line improved year over year due to continued strength in the international business and improvement in the Americas. Net revenues grew 2% in the Americas on both reported and constant-dollar basis and 33% internationally (up 30% on a constant-dollar basis). Comps in the Americas declined 2% year over year. Internationally, comps increased 25% and 22% on a constant-dollar basis.
LULU’s Upbeat Forward Outlook Reflects Strength
lululemon remains optimistic about its fiscal fourth-quarter performance, bolstered by a strong start to the holiday season. However, the company has expressed caution due to fewer shopping days between Thanksgiving and Christmas, along with ongoing macroeconomic uncertainty. Despite these challenges, lululemon has raised its revenue and EPS forecast for fiscal 2024.
For the fourth quarter of fiscal 2024, the company expects net revenues between $3.475 billion and $3.51 billion, indicating an 8-10% year-over-year increase and 3-4% growth when excluding the 53rd week. EPS for the quarter is projected to range from $5.56 to $5.64 compared to an adjusted EPS of $5.29 in the same quarter last year.
For fiscal 2024, lululemon anticipates net revenues between $10.452 billion and $10.487 billion, indicating 9% year-over-year growth and a 7% rise when excluding the 53rd week. This is an upward revision from the previous forecast of $10.375-$10.475 billion, which implied 8-9% growth and a 6-7% increase excluding the 53rd week. The company is projecting an EPS of $14.08-$14.16 for fiscal 2024, marking an increase from $12.77 reported in fiscal 2023. This updated guidance represents a slight improvement from the earlier expectation of $13.95-$14.15.
As part of its Power of Three X2 growth plan, lululemon is targeting net revenues of $12.5 billion by 2026, a substantial increase from the $6.25 billion reported in 2021.
lululemon’s Earnings Estimates Indicate Uptrend
The Zacks Consensus Estimate for lululemon’s fiscal 2024 and 2025 EPS increased 0.5% and 0.6%, respectively, in the past seven days. The upward revision in earnings estimates indicates a bullish outlook for the stock.
The Zacks Consensus Estimate for LULU’s fourth-quarter fiscal 2024 EPS rose 0.5% in the past seven days, highlighting optimism over the company’s near-term prospects.
For fiscal 2024, the Zacks Consensus Estimate for LULU’s sales and EPS implies 8.8% and 9.6% year-over-year growth, respectively. The consensus mark for fiscal 2025 sales and EPS indicates 7.3% year-over-year growth each.
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Soft Trends in the U.S. Still Pose Concerns for lululemon
lululemon’s third-quarter fiscal 2024 sales performance benefited from 2% overall growth in the Americas, with most of this growth driven by gains in Canada. Sales in the U.S. remained flat year over year, consistent with the previous quarter. While the company is making progress in improving its U.S. business, it expects a full recovery to be reflected by the first quarter of fiscal 2025.
Rising inflation and higher interest rates are impacting consumer spending, particularly on discretionary items, which has made shoppers more selective. This trend poses a significant challenge for luxury retail brands like lululemon, especially in the United States.
Coming to its outlook, the company expects a 20-30 basis point (bps) year-over-year contraction in gross margin for the fourth quarter of fiscal 2024. This decline is driven by a deleverage on fixed costs and continued investment in store growth and a multi-year distribution center project.
In terms of SG&A, the company expects an increase of 90-100 bps year over year in the fiscal fourth quarter, driven by higher investments in infrastructure and depreciation, as well as strategic initiatives to enhance brand awareness and support future growth. As a result, the operating margin for the fiscal fourth quarter is expected to decline 110-130 basis points year over year.
For fiscal 2024, lululemon anticipates a 20-30 basis point increase in the SG&A expense rate compared to the previous year and expects the operating margin to contract by 10-20 basis points year over year.
What Does a Premium Stock Valuation Mean for LULU?
With the stock steadily ticking up, LULU is currently trading at a forward 12-month P/E multiple of 27.19X, exceeding the industry average of 15.19X and the S&P 500’s average of 22.65X. At current levels, lululemon’s stock valuation looks expensive.
The stock also trades at a discount to its peers, including Columbia Sportswear COLM, Crocs Inc. CROX and Gildan Activewear GIL, which are trading at forward 12-month P/E multiples of 21.4X, 8.38X and 14.24X, respectively.
The premium valuation indicates that investors have high expectations for lululemon’s future performance and growth potential. Investors may be skeptical about buying the stock at these premium levels and may wait for a better entry point. At this moment, its current valuation seems unwarranted. LULU has a Value Score of D.
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How to Strategize Your LULU Stock Investment?
lululemon’s third-quarter fiscal 2024 results reveal a resilient performance despite challenges from the inflationary environment, leading to soft discretionary spending and struggles in the women’s category due to a product strategy that featured fewer updates to core and seasonal styles. The company is well-positioned for long-term growth, supported by strong momentum in the international business and initiatives like the Power of Three X2 growth plan.
While LULU’s strengths, an upbeat fiscal 2024 outlook, and positive estimate revisions inspire investor optimism, caution is advised. The stock's premium valuation and prevailing headwinds call for a thorough evaluation of recent developments before making investment decisions. For current shareholders, holding onto this Zacks Rank #3 (Hold) stock may prove advantageous in the long term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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