Lululemon (NASDAQ: LULU) reported better-than-expected Q1 earnings and revenue driven by strong online sales despite a volatile macroeconomic environment.
How Did Lululemon Perform in Q1?
Lululemon’s CEO Calvin McDonald said the athletic apparel retailer saw a strong robust in the first quarter as inflation did not significantly affect consumer spending.
“Our product pipeline remains very strong and it’s the bedrock of the business,” McDonald told analysts.
The company reported Q1 earnings per share (EPS) of $1.48, beating the analysts’ expectations of $1.43 per share. Net income totaled $190 million in the period, up from $145 million in the year-ago quarter. Revenue came in at $1.61 billion, up 32% year-over-year, and also above the consensus projection of $1.53 billion.
For the current quarter, Lululemon expects revenue to range from $1.75 billion to $1.78 billion, topping consensus estimates of $1.71 billion. The Adjusted EPS in the second quarter is anticipated to be in the range of $1.82 to $1.87, while analysts were looking for $1.77 per share.
On a full-year basis, Lululemon expects sales to land between $7.61 billion and $7.71 billion, marking an upgrade from the company’s previous forecast range of $7.49 billion to $7.62 billion. This compares with the analysts’ estimates of $7.54 billion, as per Refinitiv data.
The Vancouver-based company expects full-year adjusted EPS in the range of $9.35 to $9.50, up from the previous outlook of $9.15 to $9.35, and above the consensus estimates of $9.28 per share.
Lululemon reported a 28% growth in same-store sales in the first quarter, while analysts were expecting a 20.4% growth. Women’s and men’s sales were up 24% and 30%, respectively, compared to the same period in 2019.
McDonald said that around one-third of the company’s 71 stores in China were closed for a certain period of the first quarter and will remain that way in the current quarter as the country still maintains coronavirus restrictions in certain regions.
However, that will not stop Lululemon from continuing to invest in China, McDonald said, which views the weaker demand as a short-term challenge.
“Our brand momentum remains strong,” he added.
Lululemon, as well as some of its peers including Levi Strauss and Nordstrom, were among the few retailers that kept attracting buyers who had extra cash to spend on new clothes and accessories, despite the record-high inflation that saw prices rise at the fastest pace in 40 years.
Earlier this year, Lululemon said it would hike the prices of some products to help weather inflation effects and rising costs of labor, air freight, and raw materials.
What are Analysts Saying?
UBS analyst Jay Sole trimmed the price target on Lululemon’s shares to $365 per share from $430 per share. UBS rated LULU as Neutral.
“We forecast LULU delivering 21% sales and 24% EPS 5-yr. CAGRs. We expect the stock to grind higher as earnings increase. But, we don’t see opportunity for significant P/E expansion as we think the stock’s FY2 27x P/E accounts for this growth,” said Sole.
Sole added that he is more confident of a stronger sales outlook, though he believes that a notable EPS upside remains limited due to the current macro headwinds and supply chain constraints.
“Without a catalyst to drive P/E expansion, we doubt the stock will be a big outperformer,” he told clients.
On the other hand, Morgan Stanley analyst Kimberly Greenberger feels significantly more optimistic about LULU, arguing that the company has reinforced its position as one of the best-growth assets in the industry.
Summary
Lululemon delivered another solid set of results despite concerns about the state of the U.S. consumer. LULU shares are now down “only” 22% as the stock price managed to rebound roughly 17% off the 2-year low printed last month.
