Lululemon Pulls Back Into A Buying Opportunity
Shares of Lululemon (NASDAQ: LULU) are pulling back into a buying opportunity in the wake of the Q3 results. The results were good but not exciting and came with weaker than expected guidance that we see as overly cautious and setting the company up to outperform. In light of the recent institutional activity, we think the next rally could easily take the stock up to new all-time high levels, the only question is when will it start?
As for the institutions, they’ve been net buyers for the last four quarters and have upped their holdings to 80% of the stock. This contrasts with the insiders who’ve been sellers and whittled their holdings down to a mere 0.32% of the stock. While we would like to see some bullish activity among the insiders we can’t fault them for taking their profits. The takeaway is that, while the insiders are shedding their holdings the institutions have been buying and shares are trading at the lowest levels in almost two months.
The Analysts Are Pushing Lululemon Higher
The analysts rating on Lululemon is a weak Buy with a price target of $473. The analyst’s reaction to the Q3 results was a little mixed but is ultimately bullish. While no analysts raised their ratings none lowered the rating either and the consensus target moved higher despite mixed activity in regards to the stock price target. There were 7 target changes in the wake of the report with three of the analysts moving their target lower and the other four higher. The takeaway is that their consensus is very close to the broader market consensus which implies about 17% of upside for the stock. Assuming this trend continues, we see price action in Lululemon turning a little more volatile but to edge higher within a recently established range if not trend higher.
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Lululemon Beats Estimates, Gives Weak Guidance
Lululemon had a good quarter and even gave positive guidance albeit guidance below the analyst consensus. The $1.45 in net revenue is good for 29.5% of growth over last year and a similar growth versus the same period in 2019. The strength was driven by demand in all channels with a 28% gain in North America, a 40% gain overseas, and a 23% increase in DTC sales. DTC sales are underpinned by eCommerce as well as the addition of nearly 30 near stores compared to last year.
Moving down, the company was able to navigate supply chain issues and widen gross margin by 110 basis points. Moving down to the bottom line, the adjusted operating margin also widened, by 30 basis points, and resulted in better than expected earnings. The GAAP earnings of $1.62 are up $0.52 from last year and beat by $0.23 while the adjusted $1.44 beat by $0.04. As for guidance, the company is expecting full-year revenue in a range with a high end of $6.29 billion versus the $7.29 billion expected by the market.
The Technical Outlook: Lululemon Down 15%, 5% More On The Way
Shares of Lululemon are down more than 15% from the recent high and look like another 5% is on the way. A full 20% correction in the stock would put prices near the $380 level which is consistent with a strong support target. Assuming price action holds at this level, we would expect to see shares begin a consolidation that will eventually lead to a rebound and new all-time highs. The retail picture is very bright despite the supply chain headwinds, with guidance set so low we see not only a chance for the company to outperform but to truly surprise the market.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Lululemon Athletica (LULU) | $379.42 | +1.6% | N/A | 27.39 | Moderate Buy | $377.63 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
