All things must pass, even Lululemon (LULU) beating Street expectations. For the first time in three years, the athleisure leader’s quarterly results came in below the estimates.
Lululemon reported Q1 earnings last week, and, overall, sales dropped by 17% year-over-year to $652 million. The figure missed the Street’s call for $692 million, as even Lululemon’s in demand stay-at-home apparel couldn’t halt the pandemic’s ruinous effect. Earnings per share were down 70% year over year, dropping from $0.74 to $0.22.
However, it should be noted, that despite its retail stores being shuttered during the pandemic, Lululemon still managed to turn a profit. Driven by digital sales and its DTC (direct to consumer) business, revenue in the segment increased by 70% year-over-year (and 29% quarter-over-quarter) to make up 54% of overall revenue. The numbers were even more impressive in Europe and Australia, increasing by 170% and 150%, respectively. This is testament to the company’s rude health, as most of its peers couldn’t manage the same feat during the pandemic.
Further adding to Lululemon’s standing among its rivals, is data compiled by NPD that shows that within the athletic apparel sector, in the quarter, LULU made one of its strongest market gains over the past few years.
Oppenheimer’s Brian Nagel has no doubt in Lulu’s fundamentals. Despite lowering FY20 EPS estimates from $4.74 to $4.06, the 5-star analyst argues the “longer term prospects for Lulu are compelling.”
Nagel said, “We have studied closely the latest trends at LULU and come away from our work incrementally convicted in our positive intermediate- to longer-term call on the company and its shares. In the nearer term, COVID-19 challenges are apt to persist. That said, as crisis-related headwinds gradually abate, we are hard-pressed to envision another consumer enterprise as well-positioned as LULU to capitalize upon ongoing shifts in spending and potentially easing competitive pressures.”
Nagel has an Outperform (i.e. Buy) rating accompanied by a $370 price target. This conveys Nagel’s confidence in Lulu adding 19% to the share price over the coming months. (To watch Nagel’s track record, click here)
The Street remains cautiously bullish on Lululemon. 20 Buys and 9 Holds add up to a Moderate Buy consensus rating. However, the upside is modest; the average price target of $311.27 indicates room for just 0.21% growth from the $310.61 share price. (See LULU’s stock-price forecast on TipRanks)
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