Lululemon Set To Soar Into September

Just when equities were starting to look shaky again after a decent run to end the summer, athleisure brand Lululemon (NASDAQ: LULU) has given the would-be bears pause for thought. They reported their Q2 earnings after the bell rang to end yesterday’s session, and the numbers were red hot. Keep in mind Lululemon at its core is a bricks-and-mortar retailer, and so among those stocks most susceptible to the soaring inflation prints and cooling consumer spending trends that have been gathering pace all year.

Topline revenue was up an impressive 29% year on year, and well ahead of what analysts had been expecting. Similarly their earnings per share also beat the consensus and were more in line with what you’d expect from a tech stock last year than from a retailer right now. Comparable sales jumped 23%, while gross profit increased 25% to $1.1 billion. Not only did the numbers for the past quarter impress, management’s forward guidance also raised eyebrows for all the right reasons too. 

Bullish Guidance

Lululemon now expects net revenue for Q3 to be in the range of $1.78 billion to $1.805 billion versus a previous consensus of $1.73 billion, which would represent a three-year compound annual growth rate of about 25%. Similarly, earnings per share are expected to be in the range of $1.90 to $1.95 against the previous consensus of $1.78. Their full year outlook for 2022 was also improved beyond what analysts had been forecasting, and it’s in the context of all this positive momentum that shares jumped nearly 10% in last night’s after hours session.

It will be interesting to see if they can hold onto the gains, if not add to them, heading into the long weekend, but for now at least Lululemon’s results will be a breath of fresh air for many stocks, and not just those in the retail sector. If inflation starts to peak in the early months of next year as forecasted, then perhaps this earnings report will be looked back on as one of the first signs that we were turning a corner after what can only be described as a horrible year for stocks. More specifically though, it will be regarded as a turning point for Lululemon, whose shares had fallen close to 50% from last November into this summer.  

As Meghan Frank, CFO, said with the results: "our teams continue to execute at a high level, which is driving our strong financial and business performance. Despite the challenges around us in the macro-environment, guest traffic in our stores and on our e-commerce sites remains robust, which speaks to the strength of our multidimensional operating model. I am pleased with our start to the third quarter and believe we are well positioned for the fall and holiday seasons."

Best In Class

The likes of KeyBack had been waiting for something like this from Lululemon, and had gone so far as to name them on their list of top retail stocks just a few weeks ago. They said at the time that ”in our view, Lululemon is a best-in-class example of effective omnichannel execution”, while placing them up alongside the likes of Nike (NYSE: NKE) and Nordstrom (NYSE: JWN). 

Technically speaking shares still have to decisively break the multi-month downtrend they’re currently in, but at least they’ve locked in a low to work off for now. That’s around the $260 mark and it’s hard to see what kind of  negative news could be waiting around the corner that could take them back down there. Shares had already moved close to 30% higher from this level during the first half of August, but had started to cool over the past week as the broader markets turned down again. 

This report looks set to have them opening up close to their recent high which bodes well for their momentum into the final month of the quarter. For those of us admiring from the sidelines, keep an eye out for the latest CPI figures. Any further signs of inflation cooling would add fuel to the fire that’s just starting to take hold.