lululemon athletica inc. (LULU) is Attracting Investor Attention: Here is What You Should Know

Lululemon shares have declined 28.7% in the past month, underperforming the S&P 500 and its industry, prompting investor interest. Current quarter earnings are projected to be $2.91 per share, a 7.6% year-over-year decrease, with the current fiscal year estimate at $14.52, down 0.8% year-over-year, while revenue is expected to grow 7.2% for the current quarter and approximately 6-7% for the current and next fiscal years; Lululemon holds a Zacks Rank #3, suggesting market-average performance in the near term.

Analysis

Lululemon's (LULU) stock has experienced a significant downturn, declining 28.7% over the past month, substantially underperforming both the S&P 500's 0.5% gain and the Zacks Textile - Apparel industry's 17% loss. This price action reflects growing concerns, underscored by downward revisions to earnings estimates; current quarter EPS is anticipated at $2.91, a 7.6% year-over-year decrease, with the Zacks Consensus Estimate having been lowered by 12.7% in the last 30 days. Similarly, the full-year EPS forecast of $14.52 indicates a 0.8% year-over-year contraction, following a 2.5% downward revision. While a rebound to 8.7% EPS growth is projected for the next fiscal year (to $15.79), this figure has also been revised downwards by 3.5% recently. In contrast to these earnings headwinds, Lululemon is expected to maintain revenue growth, with a 7.2% year-over-year increase projected for the current quarter to $2.54 billion, and annual growth rates of 5.8% and 7.4% for the current and next fiscal years, respectively. The company's last reported quarter showed resilience, with revenue up 7.3% year-over-year to $2.37 billion and EPS at $2.60, both surpassing consensus estimates and extending a pattern of beating EPS forecasts for four consecutive quarters. Currently, Lululemon holds a Zacks Rank #3 (Hold), suggesting its near-term performance may align with the broader market, and its valuation is deemed fair relative to peers with a Zacks Value Style Score of C.

Key Decisions for Investors

• Given Lululemon's recent stock underperformance and downward earnings estimate revisions for the current year, investors should approach with caution despite its history of beating consensus.
• Monitor upcoming earnings reports closely for actualisation of projected revenue growth (7.2% for current quarter) and any improvement in the earnings outlook, particularly the current quarter's expected -7.6% YoY EPS change.
• The Zacks Rank #3 (Hold) and C-grade valuation suggest a neutral stance; consider holding existing positions or waiting for more positive catalysts before initiating new ones, given the ongoing negative estimate revisions.
• Evaluate the sustainability of the projected 8.7% EPS growth for the next fiscal year against the backdrop of recent downward revisions to this forecast.