To The Moon

$Lululemon Athletica(LULU)$ is expected to release earnings for Q4 FY23 on 21 Mar 2024 after the market closes (AMC).

Lululemon stock has soared 60% in the last 12 months vs. Nike’s -15% drop, its Zacks sector’s 17% climb, and the Market’s 32% jump. Lululemon has skyrocketed nearly 900% in the last decade vs. the benchmark’s 180%.

Lululemon’s transformation into a well-rounded sportswear and apparel company pushed $Target(TGT)$ , and countless upstarts to mimic the athleisure giant’s style. Lululemon’s high-margin growth is highly impressive as higher-income shoppers power it through various economic conditions.

Lululemon executives project it will double its net revenue between 2021 and 2026, driven by direct-to-consumer, menswear, and international expansion.

LULU is projected to post 18% revenue growth in FY23 and 14% higher sales in FY24, following 26% average expansion in the trailing five years. LULU is projected to expand its bottom line by 24% in FY23 and 15% in FY24. Its gross profit margin is high and rising, touching 58% in the most recent quarter. Nike's margin is 13 percentage points lower, at just 45% last quarter.

Earning per share is estimated to be $5 compared to $4.40 in the same period one year ago.

Lululemon (LULU) Last Reported Earnings

LULU last reported earnings on 08 Jan 2024 before the market opened (BMO). LULU shares gained +0.1% the day following the earnings announcement to close at 491.48. Following its earnings release, 71 days ago, LULU stock has drifted -4.6% lower.

From the time it announced earnings, LULU traded in a range between 440.26 and 516.39. The last price (467.27) is closer to the lower end of range.

Lululemon have given EPS surprise for the past 3 quarters earnings.

Estimated implied straddle for upcoming earnings is 9.2%. I would be expecting to see 4-5% upside price effect after the earnings. This is provided that Lululemon high-margin growth continue as higher-income shoppers continue to shop despite various economic conditions.

Lululemon (LULU) Post Earnings Movement

The options market overestimated LULU stocks earnings move 58% of the time in the last 12 quarters. The predicted move after earnings announcement was ±7.3% on average vs an average of the actual earnings moves of 7.0% (in absolute terms).

Option valuation looks overvalued, and so we could expect price volatility after the earnings, with implied volatility growing pre earnings, we could be looking at 4-5% upside post earnings.

Lululemon (LULU) Insider Transactions

Corporate insiders have put in informative sells of shares which is worth $21.2M in the last 3 months, this could be due to many reason as insiders could be taking profits while repositioning their holdings.

With Lululemon growth and profit expected to grow into 2026, there should be more upside looking forward.

Lululemon converts 22% of its sales into operating profit. This would mean profitability gap have grow much better than big names like Nike.

Summary

Lululemon have a well-rounded range of products that appeal to high income shoppers. Higher purchasing power would mean that they could still spend despite any economic conditions.

What would be interesting to see how Lululemon expansion into direct-to-consumer, menswear, and international would do to its revenue and profitability.

Appreciate if you could share your thoughts in the comment section whether you think Lululemon would continue its higher sales into FY24, which it has gotten 18% revenue growth.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.