Are Lululemon's Investors Overreacting To Lackluster Guidance? 8 Analysts Explore Q4 Results, Future Outlook

Zinger Key Points
  • Lululemon Athletica’s revenue growth guidance of 9%-10% for Q1 and 11%-12% for FY24 is a backend loaded outlook, one analyst said.
  • While the company guided to lower-than-expected earnings for FY24, it has a 3-year history of outperforming guidance, another analyst added.

Shares of Lululemon Athletica Inc LULU tanked in early trading on Friday, even after the company reported upbeat earnings results for its fourth quarter.

The results came amid an exciting earnings season. Here are some key analyst takeaways from the release.

Truist Securities On Lululemon Athletica

Analyst Scot Ciccarelli reiterated a Buy rating, while reducing the price target from $561 to $498.

Although Lululemon Athletica reported a “solid” beat for the fourth quarter, its 2024 guidance came in below expectations “due to slowing US trends in a challenging environment,” Ciccarelli said in a note.

The main concerns for investors include the company's revenue growth forecast for fiscal 2024 at 11% to 12%, which falls short of the Street's earlier projection of about a 14% increase. Additionally, the forecasted revenue growth of 9% to 10% for the first quarter indicates “an incrementally more back-weighted outlook,” the analyst stated. “While the slowdown is concerning, we view the outlook as conservative and expect beats & raises this year,” he added.

JPMorgan On Lululemon Athletica

Analyst Matthew Boss maintained an Overweight rating, while cutting the price target from $531 to $509.

Lululemon Athletica’s revenue growth in the fourth quarter was driven by 54% year-on-year growth in International, with the People’s Republic of China growing 74% versus 53% in the previous quarter, Boss said.

Although the company’s earnings guidance for fiscal 2024 came in the range of $14.00 to $14.20 per share, below the Street expectations of $14.30 per share, management has “outpaced initial EPS guidance by ~14% over the past 3 years,” the analyst noted.

Wedbush On Lululemon Athletica

Analyst Tom Nikic reaffirmed an Outperform rating, while slashing the price target from $548 to $492.

While growth in North America is moderating, Lululemon Athletica’s international performance “remains hot,” Nikic said in a note.

The analyst stated that he was “excited about product innovations,” adding that the company witnessed “a solid reception to the most recent footwear introductions, including a better-than-expected response to the first line of men's footwear.” Nikic further wrote that front-loaded investments could drive margin pressure in the first quarter.

Goldman Sachs On Lululemon Athletica

Analyst Brooke Roach reiterated a Buy rating, while lowering the price target from $541 to $521.

Lululemon Athletica delivered “a healthy 4Q margin-led EPS beat, with a significant gross margin beat and well-controlled SG&A driving outperformance,” Roach said.

He added, however, that management’s outlook for the first quarter and 2024 “implies a slowdown in sales growth momentum and a 2H-weighted forecast for margin expansion, with full year growth guided below the company’s long-term growth algorithm for both the total company and North America.” Management cited a “somewhat challenging consumer environment in the US,” the analyst further wrote.

Check out other analyst stock ratings.

BMO Capital Markets On Lululemon Athletica

Analyst Simeon Siegel maintained a Market Perform rating, while raising the price target from $408 to $420.
“LULU reported better revenues and a healthy EPS beat with strong GM. However, and likely aligning with recent investor fears, Americas underperformed vs. international and management guided 1Q/FY below consensus, citing a soft U.S. start to the quarter,” Siegel wrote in a note.

“Although this will likely prove conservative, suggesting published estimate revisions should likely be less severe than the after-market share drop, at current valuation, we expect the burden of proof will lie on management to allay N.A. concerns,” he added.

Needham On Lululemon Athletica

Analyst Anna Andreeva reaffirmed a Buy rating, while slashing the price target from $525 to $500.

Lululemon Athletica delivered a beat on both its top- and bottom-line, although the company has witnessed seeing “choppy demand in the US” so far in the current quarter, Andreeva said. “To the bears, QTD choppiness suggests competition is catching up, while to the bulls, the issues are fixable as response to innovation remains strong,” she added.

“Management attributes lack of color/smaller sizes to softer trends (younger consumer is spending, older customer is taking a pause) and is chasing into the assortment/ investing in brand campaigns,” the analyst further wrote.

Citi Research On Lululemon Athletica

Analyst Paul Lejuez said that Lululemon Athletica’s earnings beat was driven by stronger sales in China sales and gross margins. “China 4Q comps +60% were impressive, however was overshadowed by a weaker 4Q in the US and a further slowing 1Q QTD,” he wrote.

The company’s guidance came in below the consensus estimates and management “attributes the weakness to a softening US consumer, though it is unclear why their higher-income consumer would be feeling incremental macro pressures,” the analyst further stated.

Telsey Advisory Group On Lululemon Athletica
Analyst Dana Telsey maintained an Outperform rating and price target of $550.

Lululemon Athletica’s earnings beat was “driven by better-than-expected sales and gross margin results, partially offset by slightly higher expense deleverage (though in-line with guidance),” Telsey said.

Total sales grew by 15.6% to $3.205 billion, coming in higher than the consensus of $3.193 billion, while gross margin expanded by 200 basis points (bps) to 59.4%, “well ahead of the consensus of up 120 bps to 58.6% and guidance of 58.6%-58.7%, attributable to a 210-bp improvement in product margin (primarily from lower air freight), partially offset by 10 bps of FX pressure,” she added.

LULU Price Action: Shares of Lululemon Athletica had declined by 15.5% to $404.51 at the time of publication on Friday.

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Posted In: Analyst ColorEarningsNewsPrice TargetReiterationAnalyst RatingsMoversTrading IdeasAnna AndreevaBMO Capital MarketsBrooke RoachCiti ResearchDana TelseyExpert IdeasGoldman SachsJPMorganMatthew BossNeedhamPaul LejuezScot CiccarelliSimeon SiegelStories That MatterTelsey Advisory GroupTom NikicTruist SecuritiesWedbush
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