Lululemon (NASDAQ: LULU) is set to report earnings for its latest quarter after the close on Tuesday, with investors hoping for a more positive reaction after the company's stock fell 9% in the aftermath of its January 9 fourth-quarter revenue and guidance expectations update.
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The athletic apparel retailer, which is one of AskTraders' top clothing stocks, said at the time that it sees revenue in the range of $2.66 billion to $2.7 billion, representing a 25% to 27% increase compared to the same period the previous year and above the previous guidance range of $2.605 billion to $2.655 billion.
They added that earnings per share were now expected to be in from $4.22 to $4.27 for the quarter compared to the previous guidance range of $4.20 to $4.30.
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However, investors were spooked by Lululemon stating that it expects gross margin for the fourth quarter to decline 90 to 110 basis points compared to its previous expectation for an increase of 10 to 20 basis points.
At the time, Jefferies analyst Randal Konik said his firm sees “dark clouds forming” for LULU with “difficult compares, peak margins, high inventory, and rising competition.”
Even so, analysts mostly remain bullish on Lululemon, with 17 assigning it a Buy rating, two with a Hold rating, and three with a Sell rating, according to TipRanks. The average price target of $370.05 represents a potential 18% upside.
On Friday, Citi, who has a Neutral rating on LULU, opened a “30-day positive Catalyst Watch” on Lululemon shares ahead of its results, stating that while investors expect weaker sales guidance, management will probably guide sales in line with the company's long-term algorithm of up mid-teens.
The firm considers the setup into the release for Lululemon stock as favorable.
Meanwhile, TD Cowen's John Kernan cut his firm's price target on Lululemon to $470 from $488, keeping an Outperform rating on the shares on Friday.
While the analyst believes the valuation remains at the lower end of historical ranges on inventory concerns, he views the fourth-quarter results as a catalyst. In addition, Kernan thinks LULU management could issue 2023 EPS guidance that should ease worries about structural or competitive changes to the model.
At Goldman Sachs, analyst Brooke Roach said last Thursday that his firm's checks remain constructive for “brand heat” and traffic for Lululemon. The analyst said they note that inventory levels appear to remain heavy through February, but they believe recent weeks have shown signs of sequential progress.
Roach, who kept a Buy rating on the stock, expects commentary on inventory to point to normalization.
Lululemon shares are down 4% so far in 2023, trading above the $313 mark after the stock rose over 6% in the last week.
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