Will Lululemon’s share price gain post Q1 earnings?

Lululemon’s [LULU] share price performed strongly in 2020 as the pandemic meant working out at home was the only option for many people. Last year the stock climbed 49.6% as it racked up more sales, with its digital channels seeing bumper growth.

However, can the Vancouver-based athletic apparel company maintain the pace? Lululemon’s share price has fallen 5% this month [as of 1 June’s close], and upcoming earnings could have a bearing on which way the stock goes next.

  

What could move Lululemon’s share price post-earnings?

Net revenues increased 11% to $4.4bn year-on-year in 2020. A big part of this was direct to customer revenue, which jumped 101% to represent 52% of total net revenue - perhaps unsurprisingly as shuttered shops meant Lululemon ramped up shipping to customers. Gross profit from the year came in at $2.5bn, up 11% on the previous year.

“We pulled forward investments in our direct-to-consumer channel, completed our first acquisition, and tightly managed expenses while also supporting our people. These measures contributed to our strong fourth-quarter results, including growing revenue by 24%, and are helping fuel our even stronger top-line growth projections for 2021,” Meghan Frank, Chief Financial Officer said in a statement. 

  

The fourth quarter of 2020 was similarly strong, with net revenue jumping 24% to $1.7bn, while gross profit was up 25% to $1bn.

UBS analyst Jay Sole reckons Lululemon could see continued strength from people eschewing the gym to work at home. This could lead to the brand upping its full year guidance in the upcoming earnings, which would see a possible bounce for Lululemon’s share price.

"A 1Q beat with good Q2 commentary likely tells the market LULU's chance of strongly lapping 'stay at home' is better than previously thought, slightly boosting sentiment," wrote Sole in a commentary.

“A 1Q beat with good Q2 commentary likely tells the market LULU's chance of strongly lapping 'stay at home' is better than previously thought, slightly boosting sentiment” - UBS analyst Jay Sole

 

Mirror, Lululemon’s at-home fitness brand, is another area to watch out for. In September, the company purchased Mirror for half a billion dollars. However, Sole thinks the acquisition will drag on earnings, noting that the brand is trailing Peloton on social media.

Any update on Lululemon's 'Power of three’ plan to accelerate growth, first revealed in 2019 will also be one to watch out for. The plan featured some ambitious growth targets, including doubling digital revenues and quadrupling international sales by 2023.

 

When is Lululemon reporting?

3 June

 

What is Wall Street expecting?

Wall Street is expecting Lululemon to post $0.9 earnings per share, up from $0.22 per share in the same quarter last year. Revenue is pegged at $1.12bn, up 62.9% from the $688.48 seen in last year’s quarter. Lululemon itself is guiding for $0.86-$0.9 adjusted earnings per share on net revenue of between $1.100 billion to $1.130 billion.

Lululemon has beaten Wall Street expectations for the past three quarters. In Q4 results, the American apparel maker posted earnings of $2.58, topping the forecasted $2.49.

For the full year, the apparel maker is expecting earnings to come in at $6.30 to $6.45 per share, on revenue of $5.550 billion to $5.650 billion. In March, Barron’s reported that the full-year guidance was below Wall Street expectations of $6.44 earnings per share and revenue of $5.68 billion, according to FactSet, as the company re-invested in the business.

This caused several analysts to trim their price targets. B.Riley went from $409 to $374, Barclay’s from $410 to $401 and Deutsche Bank from $396 from $390. However, the analysts covering Lululemon are still positive on the stock and these targets would represent a decent upside on Tuesday’s close of $318.62.

“A strong slate of innovation for fiscal 2021, a growing men’s business, continued international growth, coupled with connected fitness and an FY22 launch into footwear keep the growth engine rolling” - Barclay’s Adrienne Yih

 

“A strong slate of innovation for fiscal 2021, a growing men’s business, continued international growth, coupled with connected fitness and an FY22 launch into footwear keep the growth engine rolling,” wrote Barclay’s Adrienne Yih, who reiterated her Overweight rating on the stock.

Analysts tracking Lululemon’s share price on Yahoo Finance have pinned an average $385.25 price target on the stock. Hitting this would see a 21% upside on Tuesday’s closing price. Should Lululemon demonstrate that it's achieving its strategic goals, along with continuing to benefit from a shift to working out at home, then the stock may edge towards this target post-earnings.