Lululemon Athletica is trying to break out of a cup-with-handle base. The athletic-apparel retailer is today's selection for IBD 50 Stocks To Watch. The growth stock poked above the 371.36 buy point Monday but dipped back into the base at midday.
Volume was running well above average — a positive sign if LULU can regain the entry.
The stock stalled after it surged nearly 13% on March 29 following strong quarterly results. Fourth-quarter sales grew 30% to $2.8 billion as earnings per share rose 31% to $4.40. The results beat expectations, and management raised its outlook.
For the first quarter, the company's revenue outlook of $1.89 billion to $1.93 billion suggests an increase of 18%. Guidance for EPS of $1.93 to $2 for the quarter was above analysts' views of $1.84, according to FactSet.
Lululemon also affirmed strong revenue and earnings growth for the full year, with revenue growth of 15% to $9.3 billion to $9.41 billion. EPS of $11.50 to $11.72 was above analysts' consensus of $11.37.
Trading volume was the highest in the base as the stock surged. Tight price action in the handle area is a positive characteristic.
Growth Stock Leads Apparel Group
The growth stock leads the retail apparel industry group, which ranks 58th among IBD's 197 industry groups. Its Composite Rating is nearly perfect at 97 while the Relative Strength Rating of 89 is good. The stock boasts an EPS Rating of 97.
Earnings have grown 23% to 123% over the past seven quarters, according to IBD MarketSmith. Lululemon is on the IBD Leaderboard as well as the IBD 50.
Analyst Alexandra Straton at Morgan Stanley maintained a buy rating with a price target of 387 for the stock in late March.
Lululemon designs and sells athletic apparel such as performance attire and footwear and accessories for various activities such as running, training and yoga. The company also offers a fitness-at-home suite through Lululemon Studio's interactive live and on-demand classes.
In 2022, 65% of sales came from the sale of women's clothes, although the company also offers men's fitness gear. Last year, 84% of sales were in the U.S., with China, Europe and the Asia-Pacific region contributing the rest.
Based in Redwood City, Calif., Lululemon had 655 stores in 18 countries at the end of the fourth quarter. The company also has outlets and sells to select wholesale locations. It has license and supply arrangements in the Middle East and Mexico.
Mutual funds own 36% of the growth stock. LULU has an accumulation/distribution rating of B-, which shows moderate buying interest from fund managers. The VanEck Retail ETF and the Future Fund Active ETF hold shares of Lululemon.
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