Lululemon Pre-earnings Analysis
Lululemon investors who purchased the stock a year ago, even three years ago, are current breaking even on their investment, despite the company’s ability to showcase impressive revenue and earnings growth. The popular athletic wear company is expected to release its fiscal 4th quarter earnings this week, which would wrap up their 2024 earnings season and provide a full picture of how it performed in 2024. The first three quarters of the year grew at 10.4%, 7.33%, and 8.73% respectively, which begs the question of why the stock hasn’t gained much ground. The answer could be in the declining rate of growth; in the years the preceded 2024, Lululemon was growing revenue at high double digits, 29% in 2022 and 19% in 2023, so the fall to single digit revenue growth could be the reason investors are pulling the brakes.
Looking at their net income, Lululemon grew profits significantly over the past four reports, which has improved its earnings multiple from 39x to 21x. This makes them a much more attractive buy for investors who base their investments on company profits. The company’s price to sales ratio has also improved from its highs 6x a year ago to the current 3.67x. As a business, Lululemon is in a better position now, especially when compared to Nike, which recently reached a new 52 week low after reporting weak earnings guidance. With that in mind, investors will be watching for the same trend in LULU, and if the company provides stronger than expected outlook, then it may help finally give them a nudge; however if they project uncertainty (due to tariffs and consumer sentiment), then it may pull them below 300.00 or keep them flat.
Looking at Lululemon as an investment would depend on the individuals’ interests and risk tolerance. The company is in a very particular space, an industry where competition is rising and challenges are constant. Lululemon has proven itself as an industry leader, but the story of Nike’s slowdown should showcase the risks of such an industry, especially when consumer spending power slows.
Option chain analysis:
Lululemon’s options expiring on April 17th currently reflect an implied volatility reading of 62%, which translates to about move of (+/-) $41.00 from the underlying stock. The direction will depend on the earnings outcome.