Lululemon
Lululemon had been an outperformer, especially among its peers as it was flat heading into this earnings report. Mostly this was because the company had seen no weakness in sales despite the challenging environment, but this is clearly no longer the case as evidenced by its latest report.
Overall, Lululemon is down 15% YTD, although shares are up by 30% from their 52-week low in May and 33% off from their all-time high in November of 2021. The weakness in the stock price and continued earnings growth has resulted in much more favorable valuations as the company sports a forward P/E of 29.
Inside the Numbers
In Q3, Lululemon reported $2 in earnings per share which beat expectations of $1.97 per share. Revenue also came in higher at $1.9 billion vs $1.8 billion. Overall, revenue was up 28% and earnings were up by 39%. The company's same-store sales were up 22% vs analysts' expectations of a 19% increase.
Q4 guidance came in lighter than expected as the company sees revenue between $2.61 billion and $2.66 billion. Analysts were looking for $2.65 billion. Earnings guidance was also lighter than expected at $4.25 vs $4.30.
For the full year, Lululemon sees revenue between $7.94 billion and $7.99 billion, a slight increase from last quarter's forecast. It also upped its EPS range to between $9.87 and $9.97 from $9.75 to $9.90 EPS last quarter.
For longer-term investors, the recent dip in Lululemon shares could present a nice, entry point, especially for those who missed the bottom in May. Although it's far from certain that the market has bottomed, it's increasingly clear that we have seen a peak in terms of long-term yields and inflation which means the bottoming process has begun.
Thus, high-quality stocks with strong outlooks and fundamentals like Lululemon should be expected to outperform and are strong candidates to make new highs in the next bull market. Therefore, investors should look to tactically increase exposure to weakness.
