4 Lululemon Analysts React To Post-Earnings Weakness: 'Challenging Year In Digital Fitness'

Shares of Lululemon Athletica Inc (NASDAQ: LULU) stabilized on Monday after a disappointing performance last week on lackluster guidance for its Mirror at-home fitness device.

On Thursday, Lululemon reported third-quarter adjusted EPS of $1.62 on revenue of $1.45 billion. Both numbers topped consensus analyst estimates of $1.41 and $1.41 billion, respectively. Revenue was up 30% from a year ago.

Lululemon’s men’s business performed particularly well, with sales jumping 44% year-over-year. Womenswear sales were also up 25%.

Same-store sales were up 32% overall driven by a 40% gain in international markets. U.S. same-store sales were up 28% in the quarter.

Lululemon also raised its full-year sales guidance to between $6.25 billion and $6.29 billion, roughly in-line with analyst estimates of $6.27 billion. However, the company cut its full-year Mirror revenue guidance from a previous range of between $250 million and $275 million to a new range of between $125 million and $130 million.

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Mirror Challenges: Bank Of America analyst Lorraine Hutchinson said Lululemon is facing a “challenging year in digital fitness,” but it is successfully managing supply chain issues.

“We see sustainable revenue momentum with opportunities for margin expansion,” Hutchinson wrote.

Wells Fargo analyst Ike Boruchow said there are now a few holes to poke in the Lululemon bull thesis.

“The situation with MIRROR is frustrating given management appears to have struck at the height of the at-home fitness market LY, while the quality of its raise is also noteworthy (GMs being lowered while SG&A cuts are driving the margin upside),” Boruchow wrote.

Impressive Execution: Morgan Stanley analyst Kimberly Greenberger said Lululemon management continues to display excellent execution.

“We suspect mgmt. could raise 4Q21 & FY guidance when it releases its holiday sales update at the ICR conference in early January, which we view as the next catalyst for the stock,” Greenberger wrote.

Telsey Advisory Group analyst Dana Telsey said Lululemon is off to a strong start to the holiday shopping season.

“While supply chain challenges persist, LULU has done well to navigate these headwinds and continues to benefit from a solid penetration of core, seasonless styles that help mitigate pressure from receipt delays,” Telsey wrote.

Ratings And Price Targets:

• Morgan Stanley has an Equal Weight rating and lowered the price target from $419 to $404. 
• Bank of America has a Buy rating and $480 price target.
• Wells Fargo has an Equal Weight rating and raised the price target from $410 to $420.
• Telsey Advisory Group has an Outperform rating and $150 target.

Photo courtesy of Lululemon.