Athleisure retailer Lululemon Athletica beat estimates for its Q3 report late Thursday. However, LULU stock fell in late trade as the company's revenue outlook came up short.
Lululemon Earnings
Lululemon reported a 26.5% increase in adjusted earnings to $2.53 per share, coming in well above FactSet forecasts of $2.28 per share. Net revenue rose 19% to $2.2 billion and just beat predictions of $2.19 billion.
Lululemon reported a 49% spike in international revenue while North American sales increased 12% for the quarter.
Total comparable sales climbed 13% vs. the FactSet consensus of 12.9% growth. Same-store sales increase 9% while direct-to-consumer revenue increased 18%.
Meanwhile, Lululemon opened 14 net new company-operated stores during the period, bringing the total footprint to 686 locations.
Company inventories fell 4% year-over-year to $1.66 billion in Q3.
Lululemon's board approved a new $1 billion stock repurchase program on Nov. 29. The athleisure company repurchased $210.8 million worth of LULU shares during the quarter with $243.2 million remaining in its previous stock repurchase program.
For the fourth quarter, Lululemon guided up to 12% earnings growth to range from $4.85 to $4.93 per share. The retailer sees revenue between $3.135 billion and $3.17 billion, representing 13% to 14% growth. The Q4 forecast missed FactSet earnings estimates of $4.94 per share on $3.18 billion in sales.
Lululemon lifted its full-year revenue outlook to range from $9.55 billion to $9.58 billion, compared to prior range of $9.51 billion to $9.57 billion. Adjusted earnings are seen increasing up to 23% to range from $12.34 to $12.42 per share. FactSet expects 2023 earnings of $12.18 per share on $9.596 billion in revenue.
Lululemon's earnings growth ranged between 22% and 54% over the past three quarters. Meanwhile, sales growth has slowed from a 30% gain in Q4 to an 18% gain last quarter.
Analyst Outlooks
Wells Fargo downgraded the shares to equal weight from overweight on Monday, citing the current valuation. It said it was "taking chips off the table" following the solid year-to-date run. Analyst Ike Boruchow wrote that his confidence was largely "played out."
Raymond James analyst Rick Patel on Tuesday downgraded LULU to outperform from strong buy, noting some upside already factored in with the recent rally. Still, Patel believes Lululemon remains a high-quality growth company with room to expand from international sales and men's categories. Raymond James sees Q3 results meeting consensus estimates but expects slower growth for Q4. Despite the downgrade, Patel hoisted his price target on LULU stock from 440 to 495 — about 7% above where shares traded on Thursday.
Michael Binetti of Evercore ISI agreed Tuesday that the rally could limit near-term upside and acknowledged Lululemon is typically more conservative with its fourth-quarter guidance. However, Lululemon's quality and consistent execution outweigh valuation concerns, he said. Strong early holiday sales trends should support a Q4 guidance increase, Binetti wrote in a research note. He kept LULU stock on his top five list and lifted the price target by 55 to 530 while maintaining an outperform rating.
LULU Stock
Lululemon replaced Activision Blizzard in the S&P 500 on Oct. 18 after Microsoft closed its $69 billion takeover of the video game giant on Oct. 13. LULU shares rocketed 23% since the S&P 500 announcement on Oct. 13.
LULU stock fell about 3% in late trade Thursday. Shares are extended above a buy zone after a mid-October breakout from a flat base.
Lululemon is less than 5% below its record high of 485.83 from November 2021.
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