Lululemon Comes Out Of The Pandemic Shining

As if a 200% rally wasn’t convincing enough, Lululemon’s (NASDAQ: LULU) Q4 earnings last night cemented the fact that they were able to make the best out of the COVID pandemic. While the stock has been consolidating its gains a little bit below its all time highs in recent weeks, these numbers should be enough to see a retest of them before too long.

Both the top line and bottom-line numbers comfortably beat analyst expectations, with the latter up an impressive 23% on the year. Comparable sales were up about the same and almost double what analysts were expecting. On top of this, the company saw fit to raise both their Q1 and full-year revenue guidance, a move that tends to be popular with Wall Street. 

Lulu’s CFO, Meghan Frank, spoke positively to the results and to the future when she noted how "we pulled forward investments in our direct-to-consumer channel, completed our first acquisition, and tightly managed expenses while also supporting our people. These measures contributed to our strong fourth-quarter results, including growing revenue by 24%, and are helping fuel our even stronger top-line growth projections for 2021."

Double-Digit Growth

Revenue from this direct-to-consumer channel jumped a spectacular 94%, helping to account for 52% of total sales while it was at it. The $1.2 billion cash balance that the company finished 2020 with is a comfortable increase on what it finished 2019 with, which bodes well for the company’s long-term growth goals. 

BTIG didn’t hang around and were out this morning with a bullish call on shares of the Vancouver headquartered company. “The remarkable durability of the brand and consistency of execution” were evident from Q4’s numbers, and considering shares are trading 20% lower than their all-time highs from September, there’s a strong case for the long opportunity here. 

In a note to clients, analyst Camilo Lyon wrote "as we look to F21, LULU is accelerating all aspects of its growth drivers (product innovation in both women's and men's, new store openings, international expansion, investments in MIRROR) in an effort to drive further market share gains (LULU expanded its share of U.S. adult activewear by ~100bps in 2020). While accelerated investments in MIRROR are driving 3%-5% EPS dilution this year (which explains the EPS guidance below the street), we believe the long term opportunity for LULU to serve both the at-home and outdoor fitness consumer places it at the center of the active lifestyle secular trend."

Conservative Estimates

Considering Lyon and the BTIG team think Lululemon’s raised guidance could still be on the conservative side of things, there’s not a lot to dislike about the company right now. Shares are trading a decent discount to recent highs but have shown their internal momentum to be as hot as ever. Given their price-to-earnings (P/E) ratio is over 70, they could be suffering a little from the broader growth-to-value rotation currently underway in the equity market. But as the saying goes, you can’t polish a diamond, and Lulu is onto a good thing here. 

Look for fresh bullish calls from Wall Street in the coming sessions and consider entries here with stops under the $300 mark. There’s a natural target of the high $300s for shares to aim for, and you’d be hard pushed to bet against them hitting that this side of summer.