LULU stock up ahead of upbeat Q2 forecast

  • Lululemon will release its fiscal second quarter results on September 1.
  • Wall Street expects EPS of $1.87 on revenue of $1.77 billion.
  • LULU has beaten its last eight EPS consensus figures.

Expectations are high for Lululemon Athletica (LULU) fiscal second-quarter results scheduled for Thursday. Wall Street expects Lululemon to make $1.87 GAAP earnings per share (EPS) on $1.77 billion in revenue. The athleisure powerhouse achieved EPS of $1.65 on $1.45 billion in the same quarter last year, so the consensus forecast is a growth rate of 13% for earnings and 22% for sales.

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Despite a difficult environment, the decent monthly inflation in July and the the following employment report with more than half a million new employees helped LULU regain lost ground in the first half. It helped Action LULU gain about 17% since the beginning of July, even if lululemon is down from $330 in mid-August.

Lululemon Earnings News

lululemon has made a name for itself among analysts. Its tendency to focus on e-commerce gains during the pandemic has allowed it to continue growing revenue at a time when many brands were struggling. Now that in-person shopping is back, crowd of analysts expect premium brands like Lululemon to continue to see big gains in traditional retail. LULU rarely offers a surprise on the earnings front. Over the past eight quarters, the company has consistently beaten consensus on bottom line. On the revenue side, it has done the same seven of the last eight quarters.

Calling it a top retail pick earlier this summer, Key Banc led the charge by giving management the benefit of the doubt:

“In our view, LULU is a prime example of effective omnichannel execution. Lululemon’s e-commerce business represents approximately 45% of revenue; in 2021, LULU experienced physical strength (+70% a /y by overcoming lockdowns) and digital (+22% y/y), and in 1Q22, e-commerce grew by +32% and comps by +24%.”

This quarter may warrant a greater focus on how the brand handles higher inflation, but analysts have already tilted projections toward weaker EPS gains. Analysts expect $9.43 for the current full fiscal year (fiscal 2023) and $11.04 for the next fiscal year (fiscal 2024).

Jefferies has been the leading Debbie Downer among the analyst community. Jefferies pointed out in July that Lululemon needs to enter new apparel categories to continue growing revenue at a healthy pace. Without the most high-profile sports stars among its sponsorships, compared to heavyweight brands like Nike and Adidas, the investment bank said Lululemon was at a huge disadvantage outside of the yoga and workout segments for which it is the most known. They reduced its rating to Underperform and slapped it with a price target of just $200, which would require Action LULU dive a third.

Lululemon Inventory Forecast

The November 2021 and April this year swing highs place the upper trendline just below $350. This is the ultimate price target for short-term bulls. A bad miss or retracted guiding could send Action LULU down to support at $260. This level was interim support in early July.

Accumulation has been positive since May, suggesting that institutions have been averaging dollar costs to work their way into larger positions. It’s always a good sign. Short-term resistance in LULU stock price stands at the 20-day moving average, just below $319. Near-term support should exist at the 50-day moving average near $301.

LULU daily chart

James T. Quintero