On Friday, Piper Sandler made an adjustment to Lululemon Athletica Inc.'s (NASDAQ:LULU) financial outlook, raising the price target to $260 from the previous $250 while maintaining a Neutral rating on the stock. The firm's decision follows Lululemon's recent quarterly performance, which surpassed expectations, and its guidance for the upcoming quarter.
Lululemon reported a second-quarter earnings beat with an $0.18 surplus to the high end of the company's guidance. This result was attributed to a combination of worse sales and selling, general, and administrative expenses (SG&A), but significantly improved gross margins due to lower markdowns and product cost benefits.
However, the company is adjusting its fourth-quarter projections downward by $0.32, a 6% reduction from the consensus earnings per share (EPS), which Piper Sandler suggests might not sufficiently account for rising inventory levels.
The company anticipates a 15% increase in inventory by the end of the third quarter of 2024, with even higher levels expected in the fourth quarter. Furthermore, Piper Sandler does not foresee a better balance between new and core products in Lululemon's women's line until the spring of 2025. Despite these concerns, Piper Sandler has slightly increased its estimates for Lululemon's financial performance for 2024 and 2025, factoring in the second-quarter earnings beat.
The analyst from Piper Sandler expressed that while the stock might temporarily be given leeway due to its prior underperformance, the valuation is likely to remain restricted. This outlook is based on the anticipation that U.S. comparable store sales will continue to decline at a mid-single-digit rate in the second quarter of 2024, following a low-single-digit decline in the first quarter of the year.
In other recent news, Lululemon Athletica Inc. has reported a steady growth amid strategic shifts in its second-quarter results for 2024. The company revealed a 7% increase in total revenue, amassing $2.4 billion, with a notable 29% revenue increase in the international segment, led by a 34% surge in China. Despite facing challenges in the women's category in the Americas, Lululemon is adopting new design strategies to rejuvenate its product line.
In addition to its clothing line, the brand's accessories business, including new backpacks and belt bags, has shown healthy growth. The company's full-year revenue guidance stands at $10.375 billion to $10.475 billion, with diluted earnings per share projected to be between $13.95 and $14.15. These developments reflect Lululemon's optimism about its long-term growth, bolstered by international expansion, product innovation, and marketing initiatives.
The company also plans to open 35 to 40 new stores in 2024, further expanding its global footprint. However, it expects a decrease in gross margin and operating margin for the full year 2024.
InvestingPro Insights
As investors digest Piper Sandler's updated outlook on Lululemon Athletica Inc. (NASDAQ:LULU), it's critical to consider additional financial metrics and expert insights that could shape the company's valuation. Lululemon's market capitalization currently stands at approximately $32.38 billion, reflecting a significant player in the retail space. The company's P/E ratio is 20.75, suggesting that the stock is trading at a price relatively close to its near-term earnings potential. This is further supported by a PEG ratio of 0.31 over the last twelve months as of Q1 2023, indicating that Lululemon's earnings growth may not be fully accounted for in its current valuation.
Moreover, Lululemon's strong revenue growth of 15.65% over the last twelve months, combined with a robust gross profit margin of 58.34%, underscores the company's ability to maintain profitability amidst market challenges. Despite a 44.55% decline in the stock price over the last six months, InvestingPro Tips highlight that Lululemon holds more cash than debt on its balance sheet and possesses liquid assets that exceed short-term obligations, providing a cushion against short-term market fluctuations.
For investors looking for a deeper dive into Lululemon's financial health, InvestingPro offers additional tips, including insights on the company's high Price / Book multiple and the fact that analysts predict profitability for this year. In total, there are 9 additional InvestingPro Tips available for Lululemon, which can be accessed for those seeking comprehensive investment analysis.
While the near-term outlook may present challenges, such as the downward earnings revision by 12 analysts for the upcoming period, Lululemon's historical performance and current financial health suggest resilience. The InvestingPro Fair Value of $380.71 USD, notably higher than the recent close price, provides an optimistic perspective on the company's intrinsic value moving forward.
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