Analysis of Quarterly Report
Lululemon Athletica Inc. released its fourth-quarter earnings report, showing an uptick in almost every aspect of the company. The company’s net revenue increased by 16% and rose from $2.7 billion to $3.2 billion. Comparable sales also increased by 12%, and the operating margin increased to 28.5% from 11.3%. The company ended the quarter with 56 net new company–operated stores, rounding out the fiscal year with 711 stores. Lululemon also ended the quarter with $2.2 billion in cash and cash equivalents as opposed to the $1.2 billion it had at the end of 2022.
Despite its steady earnings increase during the fourth quarter, the company predicts that it will only see a 9% to 10% growth for the first quarter of 2024. For the 2024 fiscal year, the company predicts that net revenue will grow from 11% to 12% or 10% to 11%. While this prediction may seem alarming to some, Meghan Frank, Chief Financial Officer, states, “Looking ahead, we will stay focused on driving the business forward for the near and long term while operating with agility and discipline. We are still early in our growth journey, and excited for what the future holds” (Business Wire, 2024).
Business Media Analysis
Following the announcement of lululemon’s quarterly earnings report and its first-quarter predictions for 2024, the company’s stock saw a rapid decrease of 17%. This is the most that the stock has fallen in the last four years. This rapid decline was due to the company’s first-quarter predictions that the company would see growth of about 10% to 11%. Unfortunately, it is a range that failed to meet Wall Street expectations. Jon Quast of The Motley Fool states, “While double-digit growth is good, analysts had expected something better. Therefore, they’re largely lowering their price targets for lululemon stock to reflect its slower-than-expected growth” (Quast, 2024).
According to Yahoo Finance, “first-quarter earnings per share are expected to be in the range of $2.35 – $2.40, below estimates of $2.55. First–quarter net revenue is seen as $2.18 billion to $2.2 billion. Wall Street had been hoping for $2.6 billion” (Lipton & Associates, 2024). The companies’ predictions were based on the insight that there has been a ‘softening of consumer spending’ within the US.
Recent studies have shown that consumers would rather spend their money on experiences such as travel or dining as opposed to apparel. According to CNBC, “lululemon has been grappling with uncertain demand and a slowdown in discretionary spending that’s hit the apparel space particularly hard.” (Fonrouge,2024). Luckily, this trend seems to be one that only affects the US markets as international sales continue to remain strong. However, investors appear to have been shaken up by the decrease in US spending and the marketplace for women’s athletic apparel becoming more saturated with the emergence of Alo Yoga and other trendy competitiors. All of this contributed to the decline in lululemon’s stock, and many called the company’s announcement “weak guidance.”
Financial Analyst Insights
Despite the first-quarter predictions reported by lululemon and negative press surrounding the announcement, most analysts maintained their buy ratings for the stock while they reduced their price targets. According to Business Insider, Truist Securities analyst Scot Ciccarelli reiterated a buy rating and reduced the price target from $561 to $498; he states that “while the slowdown is concerning, we view the outlook as conservative and expect beats and raises this year” (Benzinga,2024).
JPMorgan analyst Matthew Boss maintained an overweight rating, which means that he expects the stock price to perform better in the future. When reviewing the fourth quarter’s earnings, this appears to be a very sound analysis. Boss states that “although the company’s earning guidance for fiscal 2023 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” (Benzinga,2024).
Similarly, Wedbush analyst Tom Nikic reaffirmed an outperform rating for the company, further indicating a level of certainty in the company’s ability to perform regardless of the US market’s slowed spending. Nikic expresses his excitement about product innovations, stating that the company had “a solid reception to the most recent footwear introductions, including a better-than-expected response to the first line of men’s footwear” (Benzinga,2024).
Although all of the analysts mentioned reduced their previous price targets, they still have a considerable amount of confidence in the companies’ ability to perform and, in some cases, even outperform their competitors. In this case, expert analysis provides the conclusion that investors slightly overreacted to the company’s quarter-one prediction.
*** Disclaimer: I have no affiliation with this brand. All materials on this website were created as part of a class assignment for the University of Southern California.***