lululemon athletica stock drop after earnings is a buying opportunity - analysts

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By Senad Karaahmetovic

Shares of lululemon athletica (NASDAQ:LULU) are trading about 7% lower in pre-open Friday after the company’s raised full-year guidance still missed the average analyst estimate.

LULU posted EPS of $2.00 on revenue of $1.9 billion, which compares to the analyst estimate for earnings of $1.96 on sales of $1.81B. Revenue rose 28% year-over-year (YoY) as total comparable sales increased by 25%, easily ahead of the 17.7% expected increase.

"In the third quarter, we continued to deliver strong and balanced results across the business, demonstrating the significant potential for our brand. Our ongoing momentum is a testament to our innovative products, deep community relationships, and the hard work and dedication of our talented teams around the world," commented Calvin McDonald, Chief Executive Officer of lululemon.

LULU expected Q4 EPS in the range of $4.20 - $4.30 on revenue of $2.605B - $2.655B, lower than the consensus for earnings of $4.30 on sales of $2.65B.

For FY23, LULU raised its profit guidance to $9.87 - $9.97 from $9.75 - $9.9 and for revenue to $7.94B - $7.99B from $7.87B - $7.94B. Analysts were expecting an adjusted EPS of $9.97 on revenue of $7.95B.

For Stifel analysts, the after-hours drop in LULU stock is a buying opportunity as the company was facing “elevated” expectations.

“We view any weakness in shares as a buying opportunity and reiterate our 12 mos. TP of $450,” they said in a note.

“Conservative guidance shouldn’t be a surprise give 2/3 of the quarter is still ahead and management has memories of an omicron related shortfall pre-announcement last year,” the analysts added.

Wells Fargo analysts also stayed bullish on LULU stock after yesterday’s earnings report. The analysts hiked the price target by $15 to $360 per share.

“LULU’s a clearly powerful brand and, versus the rest of retail, this was a solid report, with strong revenue-growth understandably offset by GM pressures. However, LULU doesn’t trade like the rest of retail, and we fear early signs that costs to maintain industry-leading growth are increasing as the brand stretches past core loyalists, raising our concerns over future margin pressures,” they said.