To The Moon

Last night $Lululemon Athletica(LULU)$ issued a profit warning for the fourth quarter, causing the stock to plunge 9%, mainly because the company's high profitability, of which it has always been proud, fell short of expectations in the fourth quarter.

Gross margin is now expected to decline 90 to 110 basis points in the fourth quarter, compared to previous guidance of a 10 to 20 basis point increase. The industry-beating profitability has always been a key reason why investors like lulu. lulu's gross margin of 56% and EBIT Margin of 21% are above the industry median of 58% and 169% respectively. This means that while Lululemon's strong brand equity may protect the company from a sharp profitability squeeze, Lululemon's rich margins are likely to decline to a point where they will trend closer to industry norms in the context of a recession.

On a positive note, Lululemon has raised its revenue expectations: Compared to the company's previous guidance range of $2.605 billion to $2.655 billion, sales for the holiday quarter are expected to improve to between $2.66 billion and $2.70 billion - representing a 25% to 27% year-over-year increase compared to the fourth quarter of fiscal 2021. year-over-year growth of 25% to 27%.

However, profitability headwinds outweighed the sales expansion, which resulted in lower FY 2022 Q4 EPS of $4.22-$4.27 from the previously expected $4.20-$4.30.

There is no denying that lulu will continue to maintain its high-growth and high-profitability market position, and its middle-class positioning protects it from the impact of interest rate hikes. lulu's high revenue growth and high profit margins may not be able to be reconciled in the near future.

@MillionaireTiger @TigerStars @CaptainTiger