To The Moon

$Lululemon Athletica(LULU)$ is expected to post its quarterly earnings results for Q4 2024 on 27 March after the market close.

Market is anticipating strong growth and investors are looking forward to see if Lululemon exceeds forecasts. An analyst from Truist highlights the brand's recent surge in usage, driven by innovative products and favorable comparisons, outpacing other brands. Lululemon's TikTok momentum surpasses Ulta, Abercrombie & Fitch, and Zara.

LULU is expected to post quarterly earnings of $5.85 per share in its upcoming report, which represents a year-over-year change of +10.6%. Revenues are expected to be $3.58 billion, up 11.6% from the year-ago quarter.

Lululemon Athletica (LULU) Last Positive Earnings Call Saw Share Price Decline By 2.86%

LULU gave a positive earnings call on 05 Dec 2024 but its share price had a decline of 2.86% since.

The earnings call highlighted strong revenue growth, record-breaking Black Friday sales, and significant international expansion, while addressing challenges related to the Lululemon Studio business and increased SG&A expenses. The overall sentiment is positive with some caution due to macroeconomic factors.

Lululemon Athletica (LULU) Guidance On Inventory Management

During the Lululemon Athletica Q3 2024 earnings call, the company provided comprehensive guidance, emphasizing a strong performance with several key metrics. Revenue for the quarter increased by 19% year-over-year to $2.2 billion, fueled by a 9% increase in store sales and a 19% rise in the e-commerce segment. Adjusted earnings per share rose by 27% compared to the same period last year. The company also reported a 53% increase in revenue from Greater China, contributing to a 49% growth in international markets. Lululemon's gross profit margin improved by 220 basis points to 58.1%, driven by lower freight costs. Inventory management was notable, with a 4% decrease in inventory value, setting expectations for flat to slightly down inventory by the end of Q4.

The company issued guidance for Q4, projecting revenues between $3.135 billion and $3.170 billion, a 13% to 14% growth, and EPS in the range of $4.85 to $4.93. For the full fiscal year 2023, revenue is expected between $9.549 billion and $9.584 billion, marking an 18% increase, alongside a projected 70 basis points increase in adjusted operating margin.

Key Factors Influencing Lululemon Athletica (LULU) Q4 2024 Earnings

Revenue Growth Drivers

Holiday Season Performance: Q4 includes Black Friday, Cyber Monday, and holiday shopping, critical for Lululemon’s premium athleisure segment. Success hinges on demand for seasonal collections, gift cards, and limited-edition drops. Black Friday was the single biggest day in company history, showing strength across both store and e-commerce channels.

International Expansion: Growth in markets like China and Europe could offset saturation in North America. Recent investments in localized marketing and store openings may drive sales. International revenue increased 49%, with Greater China increasing 53%.

E-commerce Strength: Digital sales (≈40% of revenue) will be tested against in-store performance. Investments in app enhancements, personalized shopping, and omnichannel integration (e.g., buy online, pick up in-store) could boost margins.

Revenue increased 19% year-over-year, with comparable sales growing 9% in stores and 19% in e-commerce. Adjusted EPS increased 27%. A new $1 billion share repurchase program was authorized, reflecting optimism in growth. Guiding for high single-digit growth in North America due to macroeconomic factors and 2/3 of the quarter still ahead.

Margins and Profitability

Supply Chain Efficiency: Improved logistics and nearshoring efforts (e.g., reducing reliance on Asia-based manufacturing) may mitigate freight costs and delays.

Product Mix: Higher-margin categories like footwear (e.g., Blissfeel and Chargefeel sneakers) and men’s apparel (growing at ~25% YoY) could lift gross margins. Women's business increased 19%, while Men's business grew 15%.

Pricing Power: Ability to maintain premium pricing without significant discounting, despite inflationary pressures, will be key.

Operational Risks

Inventory Management: Overstocking could lead to markdowns, pressuring margins. Conversely, tight inventory might limit sales during peak demand. SG&A expenses were 38.2% of net revenue, up from 36.8% last year, reflecting strategic investments.

Currency Headwinds: A strong U.S. dollar may reduce international revenue when converted back to USD. Recognized a post-tax asset impairment and other charges related to Lululemon Studio totaling $72.1 million due to stopping sales of Mirror hardware.

Strategic Initiatives to Watch

Innovation in Product Lines

Expansion into technical apparel (e.g., hiking/running gear) and wellness categories (e.g., Mirror fitness content integration).

Sustainability initiatives (e.g., recycled fabrics) to align with eco-conscious consumer trends.

Community and Loyalty Programs

Growth of the Lululemon Membership program (free and paid tiers), driving repeat purchases and customer retention.

Store Optimization

Strategic store openings in high-growth regions (Asia-Pacific, Europe) and experiential retail formats (e.g., "community hubs" with yoga classes).

Market Trends & Competitive Pressures

Consumer Sentiment: Demand for premium athleisure remains strong, but economic uncertainty could push shoppers toward budget alternatives (e.g., Gap’s Athleta, Nike sales).

Competition: Nike’s direct-to-consumer push and Alo Yoga’s influencer-driven growth threaten market share. Differentiation via design, brand loyalty, and community engagement is critical.

Post-Pandemic Trends: Hybrid work and casualization trends continue to favor athleisure, though demand may plateau after years of pandemic-driven growth.

Lululemon Athletica (LULU) Price Target

Based on 22 Wall Street analysts offering 12 month price targets for Lululemon Athletica in the last 3 months. The average price target is $423.05 with a high forecast of $500.00 and a low forecast of $220.00. The average price target represents a 25.40% change from the last price of $337.35.

I think LULU would need to show that they would be able to grow the international revenue much bigger as the revenue from Greater China might be coming down with competition from its local sports brand, and also consumer spending might pause as Chinese might be saving rather than spending.

Technical Analysis - Exponential Moving Average (EMA)

LULU have shown good momentum as we can see a daily uptrend build up above the 26-EMA now, and RSI is also showing strong momentum moving towards the overbought region.

I think a positive and better-than-expected earnings beat or even surprise could move LULU share price even higher possibly above the 50-EMA.

Bull Case: Beat on revenue and margins, upbeat guidance on international growth, and successful product launches (e.g., new footwear lines) could propel shares. LULU’s premium valuation (~30x forward P/E) reflects high expectations.

Bear Case: Soft holiday sales, inventory write-downs, or weaker-than-expected China performance might trigger a selloff. Discretionary spending cuts in a recessionary scenario pose risks.

Summary

Lululemon’s Q4 2024 earnings will depend on its ability to balance premium brand positioning with operational resilience.

Here are some of the key metrics that I would be watching:

1. International revenue growth (particularly China),

2. Gross margin trends (impact of pricing and supply chain costs),

3. Inventory turnover and full-price sell-through rates.

While Lululemon’s innovation engine and loyal customer base provide a strong foundation, macroeconomic headwinds and competitive pressures remain challenges.

I think for the long-term, we as investors might want to focus on whether the company can sustain its "premiumization" strategy while expanding into new categories and geographies. Execution during the critical holiday quarter will set the tone for 2025 guidance.

Appreciate if you could share your thoughts in the comment section whether you think LULU could show that international revenue and its "premiumization" strategy is working to fend off competitions.

@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.