To The Moon

$Lululemon Athletica(LULU)$ is a well-known brand in the apparel industry, and the company's earnings report is highly anticipated. As LULU be releasing its earnings report today after the market closes, let’s see whether it is worthwhile to invest in LULU.

About Lululemon

Lululemon Athletica Inc. is a Canadian athletic apparel retailer, founded in 1998 by Chip Wilson. The company has expanded to include various types of clothing, including yoga pants, shirts, shorts, and accessories such as bags and hats. Lululemon has expanded its business over the years to include e-commerce sales, and its products are sold in stores across North America, Europe, and Asia.

LULU's current stock performance

One factor to consider is LULU's current stock performance. LULU's stock has been on an overall downward trend, declining in recent months, dropping around 19% since early January 2023. This decline is attributed to several factors, including the earlier supply chain disruptions, rising raw material prices, and increased competition in the athletic apparel industry. There are analysts see this as an opportunity to buy at a lower price. In fact, some experts suggest that now may be the time to buy LULU before its earnings report, as the market may already be pricing in any potential negative news. And we can see that from the chart below that indeed the stock has rose for the past 5 trading days before today .

LULU day chart

Industry outlook

Another factor to consider is the industry outlook for the athletic apparel market. The athletic apparel industry is expected to grow at a steady rate over the next few years. This bodes well for LULU, as the company is known for its high-quality athletic apparel and has a strong brand reputation. Additionally, LULU has been expanding its product line to include more items beyond just athletic wear, such as casual clothing and accessories. This diversification may help the company weather any potential downturns in the athletic apparel market.

Furthermore, LULU has been investing in its online and digital channels to grow its sales. The company has been focusing on its e-commerce platform, launching a new website and mobile app to enhance the customer experience. This investment in digital channels may help LULU continue to grow its sales, especially during the ongoing pandemic when many consumers prefer to shop online.

Potential risks

However, there are some potential risks to consider before trading LULU. One factor is the ongoing high inflation and increased costs associated with shipping and logistics. This may impact the company's bottom line and could lead to lower earnings. Additionally, there is always the risk that the company may not meet analysts' expectations, which could cause the stock price to drop.

Competition in the athletic apparel market

Another factor to consider is the increased competition in the athletic apparel market. LULU faces increased competition from other athletic apparel brands, such as $Nike(NKE)$ Nike, $Under Armour(UA)$ Under Armour, and Adidas. These companies are also investing in their e-commerce platforms and expanding their product lines, which may put pressure on LULU's sales and market share.

Growth Potential

Despite these potential risks, the athletic apparel industry is expected to continue growing, and LULU is well-positioned to benefit from this trend. The company has a strong brand reputation and a loyal customer base, which may help it weather any potential challenges. Additionally, LULU's financials are relatively strong. The company has a relatively low level of debt also a strong balance sheet, with means it has ample liquidity to meet its short-term obligations.

When looking at LULU's earnings growth potential, the company has seen impressive growth in recent years. LULU's earnings per share (EPS) have grown by an average of 25% over the past five years. Furthermore, the company's EPS is expected to grow by 20.6% in the next fiscal year, indicating that it has strong earnings growth potential.

Conclusion

Based on the various factors discussed, it may be worth considering trading LULU before its earnings report. The company's stock has been on a downward trend, which may provide an opportunity to buy at a lower price. Additionally, the athletic apparel industry is expected to continue growing, and LULU is well-positioned to benefit from this trend. The company's financials are relatively strong, and it has seen impressive earnings growth in recent years. However, investors should also consider the potential risks, such as growing uncertainty in the global economy and increased competition in the industry which can seriously lower demand for its good.

LULU critical support level

For those looking to invest in LULU for the long term, one possible way is to sell put options and it seems that a good strike price to sell put option would be around 260 to 270. This is because the long-term critical support level is around 260 to 270 based on the day chart and this support level extends all the way to pre-pandemic years in 2019 (see chart above). Based on the current trading price of around 317, the premiums from selling the above options can go above USD100 per contract ( $LULU 20230406 270.0 PUT$ $LULU 20230406 260.0 PUT$) which is a reasonable return.

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