Lululemon preview: Sales set to grow amid luxe spending slowdown, theft, China sluggishness
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Lululemon Athletica Inc. (NASDAQ:LULU) is set to report second-quarter earnings on August 31 after the close amid the recent pullback of the U.S. luxury consumer, increased retail theft and a slow recovery in China.
Earnings per share is expected at $2.54 while revenue should clock in at $2.17B, according to average analyst estimates. Same-store sales are expected to have jumped 11%, compared to Athletaâs (GPS) same-store sales down 7% for the most recent quarter and Nikeâs (NKE) up 14%.
Retailers have reported mixed results recently, with higher-end consumers in the U.S. showing weakness at LVMH MoÃ«t Hennessy - Louis Vuitton (OTCPK:LVMHF), Movado (MOV) and Kering SA (OTCPK:PPRUF), among others. Meanwhile, Walmart (WMT) and Target (TGT) have reported better-than-expected quarterly earnings results. Others, like Dickâs Sporting Goods (DKS) and Macyâs (M) have said that retail theft on the rise has been hurting sales.
Chinese consumers are also dragging but analysts see the athleisure wear maker gaining on the country as it proved to do well even amid pandemic restrictions.
Shares of LULU are up 16% this year so far.
Citi
Citiâs EPS estimate is higher than the consensus estimate at $2.67 based on greater sales that the bank attributes to strong China growth and better gross margins. Citi rates LULU a Buy and has a price target of $450.
Management is expected to raise guidance on EPS for the year from the current forecast of $11.74 to $11.94, Citi analysts led by Paul Lejuez wrote in a note. Sales that are currently expected to increase 17% will likely go to 18%. For the third quarter, the company should guide in-line with consensus at 15% to 16% top line growth and EPS of $2.20 to $2.30.
âWe expect 2Q to support our view that LULU is in the early stages of significant intâl growth, particularly in China,â Citi said. âWe acknowledge this is a crowded long amongst hedge funds and expectations are high, which may limit upside in the very near term.â
LULU continued to show momentum in the U.S. and is one of few brands that has not given back any sales gained during the pandemic period, Citi said. LULU ended the first quarter with 119 stores in Greater China, the second biggest market in terms of store count behind the US (350 stores).
Citi pointed out that Greater China revenue grew 30% year-over-year in 2022 even with lockdown pressures.
âChina growth could look even stronger in 2Q. We expect mgmt to talk very positively about the long-term growth opportunity in that region,â Citi said.
Bank of America
Bank of America maintained its Buy rating on LULU and price objective of $450, saying the company âremains highest quality.â
BofA forecast EPS of $2.51 and said it sees potential upside to both sales and margins.
For the second quarter, the firm sees sales growth of 15.7%, gross margin expansion of 220bp and 220bp of SG&A deleverage.
âWhile we expect China to lead the growth, we are confident that newness and innovation will lead to strong sales in North America,â BofA analysts Lorraine Hutchinson and Christopher Nardone wrote in a note.
âThe macro picture in China has deteriorated, but LULU is underpenetrated versus other athletic brands and we expect this catch-up to offset weaker economic conditions,â BofA said. âAs China continues to scale, we expect the margin profile will exceed LULUâs most profitable region (North America).â
The firmâs $450 price objective is based on 19x F2024E EV/EBITDA.
âWe think a premium to LULU's peer group average of high-growth consumer companies (13-15x) is justified given LULU's relatively stronger growth prospects including a productive U.S. rollout, rapid e-commerce growth, and international expansion,â Bank of America said.
Seeking Alpha
Seeking Alpha analyst Geoffrey Seiler, who has a Buy rating on the stretchy pant maker, noted that guidance appears to be conservative, however, there has been pressure in luxury spending in the U.S. of late.
Analyst expectations for fiscal Q2 revenue have moved slightly higher throughout the past year, increasing 4% over the past 12 months, Seiler said. Estimates are up 0.6% since late May. EPS estimates, meanwhile, are up 14.5% over the past year, and up 3 cents from late May.
LULU has beaten the consensus revenue number in seven of the eight quarters over the past two years, and it has bested estimates in each of the past eight quarters.
âWith the strong performance, LULUâs stock has had generally had a solid reaction to its earnings reports,â the analyst wrote in a note.
Investors will likely be focusing on revenue and gross margins, both in terms of actual numbers and guidance. How the company is progressing in China will also likely be a topic of focus.
LULU continued trades at discount to rival Nike (NKE), despite faster growth, Seiler said.

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