Lululemon Athletica (LULU) raised 2023 guidance late Tuesday after topping earnings and revenue estimates for the holiday fourth quarter. LULU stock jumped Wednesday.
The yogawear and athleisure apparel retailer's final Q4 results also exceeded its own preliminary announcement, issued in early January.
Notably, LULU made progress clearing out excess inventory. But margins got hit again in the quarter. Generally, product markdowns or discounts to reduce inventories are weighing on retail profit margins.
"Lululemon doesn't like to really talk about discounting too much. But, you know, it does look like Lululemon had to resort to more discounting than normal to get that sales number that they posted," Morningstar analyst David Swartz told Yahoo Finance.
In a separate March 28 note, he called Lululemon's guidance "likely conservative," given its momentum.
XLululemon Earnings
Estimates: Analysts polled by FactSet expected Lululemon earnings to rise 27% to $4.26 per share. Revenue was seen climbing nearly 27% to $2.701 billion, as same-store sales rise 24%.
Results: Lululemon earnings jumped nearly 31% to $4.40 a share. Revenue popped 30% to $2.8 billion. Both slightly accelerated from the prior quarter.
Gross margins fell 300 basis points to 55.1%. Adjusted gross margin slid 70 basis points to 57.4%. Inventories were up 50% vs. a year earlier to $1.4 billion. That's after Q3 inventories leapt 85% to $1.7 billion.
"Our ability to exceed our annual revenue target in a dynamic operating environment is a testament to the enduring strength of the Lululemon brand," CFO Meghan Frank said in a March 29 earnings release.
Outlook: Lululemon provided first-quarter and 2023 earnings and revenue guidance above forecasts.
For the current Q1, the company expects revenue of $1.89 billion-$1.93 billion, an increase of 18%. It guided EPS of $1.93-$2 for the quarter. Analysts were expecting EPS of $1.84, FactSet shows.
For the full year, Lululemon expects revenue of $9.3 billion to $9.41 billion, growing 15%. It forecast EPS of $11.50-$11.72 for the year. Analysts were expecting EPS of $11.37.
LULU Stock
Lululemon stock leapt nearly 14%, near 365, Wednesday. Shares had closed up almost 1% to 320.31 in Tuesday's stock market trading. The retail stock reclaimed the 50-day moving average last week and topped the 200-day line on Monday.
LULU stock is building the right side of a base going back to early December. The buy point is 386.80.
The relative strength line, which tracks a stock's performance vs. the S&P 500, recently hit a six-month low, but should rebound with LULU stock on Wednesday.
Nike (NKE) rose 0.8% Wednesday, but is below the 50-day line after skidding last week on a sharp drop in gross margins. Foot Locker (FL) shed 1.3%, also below the 50-day line. FL stock crashed last week despite strong earnings due to a weak outlook.
Shoppers have turned more cautious due in part to rising inflation, which tends to sap monthly budgets.
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Lululemon Warning
On Jan. 9, Lululemon Athletica updated earnings and revenue expectations for its holiday Q4, which ended in January.
It forecast revenue of $2.66 billion-$2.7 billion, a 25%-27% increase vs. a year earlier. It previously guided $2.605 billion-$2.655 billion. Lululemon said it expected Q4 EPS of $4.22-$4.27 vs. $4.20-$4.30 prior. But it saw Q4 margins declining 90-110 basis points vs. its previous guidance for an increase of 10-20 basis points.
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