Lululemon Athletica (LULU) shares are soaring after the company beat its Q4 top and bottom line expectations after hours yesterday.
Wall Street may be upbeat about Lululemon’s strong quarterly results as it bolsters the yoga-inspired athletic apparel company’s loyal customer base amid high inflation.
With Lululemon stock up 13% today, let’s see if investors should buy into the rally.
Q4 Review
There does not appear to be a decline in spending among Lululemon’s higher-end customers as the company was able to beat Q4 earnings expectations by 3% with EPS of $4.40. Lululemon also topped sales estimates by 3% at $2.77 billion.
Year over year, Q4 earnings and sales were both up 30% from the prior-year quarter. Overall, Lululemon’s annual earnings increased 30% at $10.07 per share compared to EPS of $7.79 in 2021. Total sales also increased 30% in fiscal 2022 to $8.1 billion.
More impressive, Lululemon has now beaten earnings expectations for 11 consecutive quarters and surpassed sales estimates in four straight quarterly reports.
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Growth and Outlook
Based on Zacks estimates, Lululemon’s earnings are forecasted to rise 11% this year and jump another 17% in Fiscal 2024 at $13.22 per share. Earnings estimates had started to decline but could trend higher after Lululemon’s better than expected Q4 report and guidance.
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On the top line, sales are projected to be up 12% in FY23 and rise another 13% in FY24 to $10.31 billion. Fiscal 2024 would be a 214% increase over the last five years with pre-pandemic sales at $3.28 billion in 2019.
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Performance & Valuation
Year to date, LULU stock is now up +12% to outperform the S&P 500’s +4% and apparel competitor Nike’s (NKE) +2% but trail Adidas’ (ADDYY) +16%. Over the last three years, Lululemon’s +86% has easily topped Nike, Adidas, and the benchmark.
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Trading around $361 per share, LULU stock trades at 28.4X forward earnings which is much higher than the industry average of 10.5X and above the S&P 500’s 18.3X.
With that being said, Wall Street has been ok with paying a premium for Lululemon stock due to its expansive growth. Plus, LULU trades 68% below its decade high of 90.3X and at a 14% discount to the median of 33.2X.
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Bottom Line
Lululemon stock lands a Zacks Rank #3 (Hold) at the moment. The strong Q4 results certainly support the growth that is expected in Lululemon’s fiscal 2023 and FY24 outlook despite the possibility that high inflation may continue to slow consumer spending.
Still, Lululemon’s loyal higher-end customers appear to be propelling the company, and holding on to LULU stock at current levels could be rewarding.
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