Athleisure apparel giant Lululemon Athletica reported strong first-quarter results and full-year guidance late Thursday in what's been a mixed bag for retailers this earnings season. The Vancouver-based company specializes in yoga products and workout gear and competes against industry heavyweights Nike and Adidas. LULU stock spiked Friday after results.
The retail landscape looks more challenging for the remainder of the year. Barclays noted in a May 2 research note that "consumers across all income brackets are pulling back" on discretionary products as inflation takes a chunk out of their wallets.
Meanwhile, analysts closely watch inventory levels as companies try to offload stockpiles of excess merchandise. Storage costs for those mountains of goods, and the promotions and discounts often needed to move them quickly, tend to weigh on profits.
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One of the top retail sectors early in the year, footwear and apparel retailers, has started to show signs of weakness. Rival Nike was downgraded to sell last week based on a challenging outlook for its U.S. business and "choppy" recovery in China.
Elsewhere, Foot Locker received a downgrade and price target cut from Citi based on price-sensitive consumers and an "unhealthy" U.S. athletic market.
However, some consumers plan on restocking their fitness gear with summer around the corner. Roughly 35% of consumers plan to splurge on apparel and 19% expect to spend big on fitness products this year, according to a monthly McKinsey survey in May. That's up from April's results of 33% of consumers planning to splurge on apparel and 15% on fitness products, respectively.
Analysts Aren't Souring On LULU Stock
Despite the choppy U.S. market, LULU stock received price target upgrades in late April as analysts are still positive on the company's overseas outlook.
TD Cowen raised its price target on LULU stock to 525 from 500 on April 27 and maintained an outperform rating on the shares. The firm noted it expects direct-to-consumers and e-commerce growing to 43% of sales and current trends "suggest a bullish read for the international mix shift."
That followed a Bank of America price target upgrade on April 20, which lifted BofA's forecast to 450 from 410 and maintained a buy rating on LULU stock. Lululemon continues balancing its historically grassroots-focused marketing program with "several more meaningful campaigns," the firm wrote. Bank of America noted Lululemon's "unique" membership program is gaining traction. And growth in China will be a key near- and long-term driver.
On April 18, media reports emerged Lululemon is looking to sell the at-home fitness business. Bloomberg News reported Lululemon was working with an advisor to solicit interest in the business. CNBC later reported Hydrow, a private startup that makes in-home rowing machines, has interest in a deal with Lululemon.
Lululemon previously announced at the end of March it was "evolving" its at-home fitness business strategy with plans to focus on digital app-based services. In its fourth-quarter earnings, Lululemon disclosed a $443 million impairment charge related to Studio Mirror, the company's streaming workout service.
Lululemon Earnings
Lululemon earnings didn't have to break a sweat to beat analyst forecasts. Earnings vaulted 54% to $2.28 per share while revenue leapt 24% to $2 billion.
Analysts expected Lululemon adjusted earnings to bolt 32.4% to $1.96 per share while sales sprinted 19.3% to $1.924 billion.
Comparable sales rose 13%, slowing from the 28% growth last year and 27% growth in the fourth quarter, respectively. FactSet guided same-store sales to rise 15.4%.
Direct-to-consumer net revenue represented 42% of total sales, slightly lower than 45% from Q1 2022.
Outlook
For the second quarter, Lululemon expects net revenue to grow roughly 15% to range from $2.14 billion to $2.17 billion while earnings range from $2.47 to $2.52 per share. FactSet analysts predict earnings of $2.49 per share on $2.16 billion in sales.
For the year, Lululemon anticipates earnings rise to range from $11.74 to $11.94 per share compared to $10.07 last year. The company sees a 17% revenue increase to $9.44 billion to $9.15 billion. The guidance surpasses FactSet earnings forecasts of $11.60 per share on $9.37 billion in sales.
Lululemon averaged 28.8% earnings growth over the past four quarters while revenue averaged 29.8% quarterly gains last year. The yoga company found its center and beat Wall Street earnings estimates the past two years.
LULU Stock
LULU stock leapt 11.3% Friday, rebounding strongly from the 200-day line. Shares had closed down 1.1% to 328.35 in Thursday's regular trading, closing below the 200-day for the first time since late March.
Lululemon broke out of a cup-with-handle base on April 17, peaking at 389.06, a 52-week high, on May 5. Shares then fell steadily over the next several weeks, breaking below the 50-day line on May 23.
Lululemon stock has a 90 Composite Rating out of a best-possible 99. The Composite Rating combines a number of technical indicators into one easy-to-read score. Shares have a near-perfect 97 EPS Rating. Lululemon's relative strength line is off recent May highs and has an 83 RS Rating.
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