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Lululemon Updates Q4 Guidance; Shares Plunge 9%

Athletic apparel company Lululemon Athletica Inc. (LULU) announced a revised outlook for its upcoming earnings expectations for the fourth quarter, which is scheduled for March 30, 2022.

Despite witnessing a strong holiday season in Q4, LULU has lowered its Q4 revenue and earnings estimates due to the Omicron-related COVID-19 infections, labor shortages, and inventory issues.

Following the news, shares plunged more than 8.9% momentarily, but ended the day down 1.9% at $348.43 on January 10.

Revised Outlook

For Q4, LULU now expects net revenue to fall on the lower end of its prior guidance range of $2.125 billion to $2.165 billion, while the consensus is pegged at $2.17 billion.

Similarly, the company now expects adjusted earnings to be closer to the lower end of the range of $3.25 per share to $3.32 per share, against the consensus estimate of $3.34 per share.

CEO Comments

CEO Calvin McDonald said, “We are closing out a strong 2021 in the coming weeks, and we’re pleased with how lululemon has delivered over the course of the year. We started the holiday season in a strong position but have since experienced several consequences of the Omicron variant, including increased capacity constraints, more limited staff availability, and reduced operating hours in certain locations. I am proud of how our teams continue to deliver for our guests, and we are excited about what the future holds for lululemon.”

Analysts’ View

Responding to the news, Guggenheim analyst Robert Drbul reiterated a Buy rating on the stock and price target of $475, which implies 36.3% upside potential to current levels.

Drbul said, “Despite Omicron headwinds, we are encouraged by the continued broad strength across LULU’s product portfolio and still expect the brand to deliver strong results in 4Q21E into FY22E as active/casual and health/ wellness trends remain firmly intact.”

The analyst added, “Overall, we continue to view LULU as one of the strongest brands in retail, with favorable secular tailwinds and a quickly growing, high margin digital business to justify the shares’ premium valuation, in our view.”

Overall, the stock has a Moderate Buy consensus rating based on 11 Buys and 5 Holds. The average Lululemon Athletica price target of $467.44 implies 34.2% upside potential to current levels. Meanwhile, LULU shares have lost 2.4% over the past year.

Blogger Opinions

TipRanks data shows that financial blogger opinions are 82% Bullish on LULU, compared to a sector average of 73%.

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