Lululemon Analysts Break Down Q2 Earnings: 'Clear Runway For Continued Growth'

Lululemon Athletica Inc LULU shares traded higher by 12.7% on Thursday after the athletic apparel company reported a second-quarter earnings beat and raised its guidance.

On Wednesday, Lululemon reported second-quarter adjusted EPS of $1.65 on revenue of $1.45 billion, and both numbers exceeded consensus analyst estimates of $1.19 an $1.34 billion, respectively. Revenue was up 61% from a year ago.

Lululemon reported a 63% increase in North American sales, while international sales were up 49% in the quarter. Lululemon’s women’s business grew 26% on a two-year basis, and its men’s business grew 31% compared to 2019.

Looking ahead, Lululemon guided for third-quarter revenue of between $1.4 billion and $1.43 billion, ahead of analyst estimates of $1.32 billion. The company also guided for EPS of between $1.33 and $1.38 compared to analyst estimates of $1.32.

Lululemon’s updated full-year guidance also suggests the company is on track to hit its 2023 revenue target in 2021, two years ahead of schedule. Lululemon is now projecting full-year revenue of between $6.19 billion and $6.26 billion, ahead of consensus estimates of $5.94 billion.

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Long-Term Growth Runway: Bank of America analyst Lorraine Hutchinson said Lululemon has a “clear runway for continued growth.”

“We see a sustainable long-term growth algorithm with further opportunities for margin expansion as supply chain conditions improve,” Hutchinson wrote.

Oppenheimer analyst Brian Nagel said Lululemon remains one of his top stock picks within the consumer growth and e-commerce space.

“We look upon recent trends at LULU as nothing short of impressive and indicative of a strong and still-developing brand managing very well a fluid consumer backdrop,” Nagel wrote.

Navigating Supply Chain Issues: Telsey Advisory Group analyst Dana Telsey said supply chain issues remain a concern for Lululemon in the near term, but the company has included those disruptions in its updated guidance.

“Overall, the pandemic has accelerated LULU’s strategic initiatives and the company appears well-positioned to further capitalize on opportunities in a post-pandemic world with a strong core business supported by continued investments in digital and international,” Telsey wrote.

Wells Fargo analyst Ike Boruchow said Lululemon has maintained its impressive momentum, but the debate over its valuation rages on.

“While the company has many attractive growth prospects (which have higher visibility than in the past) that they appear to be executing on, we believe this [is] fairly reflected in [its] valuation,” Boruchow wrote.

Ratings And Price Targets:

• Bank of America has a Buy rating and a $480 target.
• Wells Fargo has an Equal Weight rating and a $410 target.
• Oppenheimer has an Outperform rating and a $405 target.
• Telsey Advisory Group has an Outperform rating and a $485 target.

Photo: Courtesy Lululemon