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Why Is Lululemon (LULU) Down 6.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Lululemon (LULU). Shares have lost about 6.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lululemon due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

lululemon Q4 Earnings Beat Estimates, Sales Rise Y/Y

lululemon athletica reported fourth-quarter fiscal 2021 results, with earnings and revenues improving year over year. The bottom line surpassed the Zacks Consensus Estimate, while the top line missed the same.

Q4 Numbers

lululemon’s fiscal fourth-quarter adjusted earnings of $3.37 per share beat the Zacks Consensus Estimate of $3.27 and increased 31% from $2.58 reported in the year-ago quarter. The metric improved 22% on a two-year compounded annual growth rate (CAGR) basis.

Quarterly revenues advanced 23% year over year to $2,129.1 million but missed the Zacks Consensus Estimate of $2,135 million. On a constant-dollar basis, revenues increased 23%. The company’s net revenues grew 21% in North America, while the same surged 35% internationally. Compared with the fourth quarter of fiscal 2019, net revenues improved 52%, reflecting a two-year CAGR of 23%.

Total comparable sales rose 22% year over year, with a 32% increase in stores and 16% growth from e-commerce. Comparable store sales advanced 32%.

Direct to consumer net revenues climbed 17% (up 16% on constant-dollar basis). Direct to consumer net revenues accounted for 49% of the company’s total net revenues compared with 52% in the fourth quarter of fiscal 2020.

In the company’s store channel, sales increased 47% year over year and 3% on a two-year CAGR basis. The company’s e-commerce business delivered an impressive performance, with comps rising 16% year over year. On a two-year CAGR basis, the e-commerce business grew 50%.

Margins

Gross profit improved 22% year over year to $1,236.2 million. However, gross margin contracted 50 basis points (bps) to 58.1%, thanks to escalated air freight expenses. Gross margin expanded 10 bps from the fourth quarter of fiscal 2019. The expansion was a result of leverage on occupancy, product team, depreciation and DC costs. Also, favorable impacts from foreign currency translation were an upside.

Adjusted income from operations jumped 27% year over year to $592.0 million. Adjusted operating margin expanded 90 bps to 27.8%. The metric contracted 200 bps from the fourth quarter of fiscal 2019.

SG&A expenses of nearly $642 million increased from $544.8 million reported in the year-ago quarter. SG&A expenses, as a percentage of net revenues, came in at 30.2%, down from 31.5% reported in the prior-year quarter, owing to leverage in store channel. This was somewhat offset by higher investments in corporate SG&A.

Financials

lululemon exited the quarter with cash and cash equivalents of $1,259.9 million and stockholders’ equity of $2,740 million. At the end of 2021, the company had $397 million remaining under its committed revolving credit facility.

At the end of the year, the company’s inventories grew 49% to $966.5 million. On a number of units basis, inventory was up 33%.

Outlook

For fiscal 2022, net revenues are expected between $7.490 and $7.615 billion, suggesting growth of 20-22%. It anticipates gross margin to contract between 50 bps to 100 bps during fiscal 2022. For the year, EPS is envisioned in the range of $9.15 to $9.35.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 11.28% due to these changes.

VGM Scores

Currently, Lululemon has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lululemon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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