Lululemon Athletica’s stock performance has lagged behind the market for a significant portion of the year, prompting anticipation for a potential catalyst. The upcoming earnings report could serve as this much-needed catalyst, although there are lingering doubts among investors.
The company is scheduled to report its financial results for the fiscal fourth quarter after the market closes on Thursday. Analysts are forecasting that Lululemon will report earnings of $5 per share on $3.2 billion in revenue for the quarter ending January 2024. Projections suggest that same-store sales will increase by 12.3% year-over-year during this period, marking the company’s 14th consecutive quarter of double-digit same-store sales growth. Despite these positive expectations, Lululemon’s stock has declined by approximately 8% this year, contrasting with the nearly 10% gain seen in the S&P 500 index. The stock’s downward trajectory began earlier this year when the company issued fourth-quarter guidance that fell short of analysts’ forecasts.
Although the guidance miss was not particularly severe, investors had higher expectations given the company’s significant share price appreciation of around 60% throughout 2023. Concerns about intensifying competition in the athletic wear sector and a softening consumer spending environment have also resurfaced. Fourth-quarter foot traffic increased by 20% year over year, according to data from Placer.ai, surpassing the sector’s average increase of 8.9% but trailing behind competitor Nike’s nearly 70% improvement.
Randal Konik, an analyst at Jefferies, expressed caution in a note to investors, maintaining a Sell rating on the stock. He believes that while his previous call did not materialize last year, there are emerging “fundamental cracks,” and he anticipates that the company’s outlook for the year ahead could lean towards the conservative side.
However, some analysts remain bullish on Lululemon’s long-term growth prospects despite potential near-term challenges. Abbie Zvejnieks from Piper Sandler emphasized that softer demand trends at the start of the year might influence the company’s fiscal 2024 guidance but reaffirmed the firm’s belief in Lululemon’s strong product pipeline, data-driven consumer connection, and premium positioning.
Similarly, Barclays analyst Adrienne Yih, who maintains an Overweight rating on the shares, remains optimistic about Lululemon’s performance throughout the year, citing clean inventory and a robust product pipeline as key drivers of customer engagement and sales growth.