Lululemon Stock Bestows a Buying Opportunity

Athleisure apparel and footwear maker Lululemon NASDAQ: LULU stock is down (-28%) in the 2022 bear market despite stellar earnings performance. The popular retail fitness apparel brand is still firing on all cylinders despite the return of formalwear as consumers return back to work. The Company raised its full-year 2022 top and bottom line guidance with the recent fiscal first-quarter top line showing 32% growth. It’s direct-to-consumer (DTC) net revenues also climbed 32% and made up 45% of total net revenue. E-commerce sales showed robust 40% growth rate. These impressive results occurred despite supply chain disruptions, inflationary pressures, and the China COVID lockdowns, which caused nearly a third of its 71 stores to temporarily close for a period of time. The Company plans to open the majority of its 40 new stores in mainland China thanks to its 60% three-year CAGR. The Company is experiencing rising logistics costs and longer freight times but has also bolstered its inventory to mitigate some of the transient challenges. Prudent investors seeking exposure in a retailer that is still operating with robust top and bottom line growth can watch for opportunistic pullbacks in shares of Lululemon.

Fiscal Q1 2022 Earnings Release

On June 2, 2022, Lululemon released its fiscal first-quarter 2022 results for the quarter ended April 2022. The Company reported diluted earnings-per-share (EPS) profit of $1.48, beating consensus analyst estimates for $1.43 by $0.05. Revenues grew 31.6% year-over-year (YOY) to $1.61 billion meeting analyst estimates for $1.55 billion. Total comparable sales rose 28% and DTC revenues rose 32% YoY.

 Lululemon CEO Calvin McDonald commented, "In the first quarter of 2022, continued momentum in the business enabled us to achieve a strong start to the year. These results provide a solid foundation as we begin our next five-year journey and deliver against our new Power of Three ×2 growth plan. I want to thank our teams around the world for remaining agile and continuing to execute at a high level to achieve our goals, while successfully navigating the challenges within the macro environment. We look forward to all that lies ahead for lululemon as we continue to grow the brand."

Upside Guidance

Lululemon raised its guidance for fiscal Q2 2022 EPS of $1.82 to $1.87 versus $1.77 consensus analyst estimates on revenues of $1.750 billion to $1.775 billion. Full-year fiscal 2022 EPS is expected between $9.35 to $9.50 versus $9.35 consensus analyst estimates on revenues between $7.61 billion to $7.71 billion versus $7.58 billion consensus analyst estimates.

Conference Call Takeaways

CEO McDonald provided the narrative of the overall macro environment and how Lululemon differentiates itself in the highly competitive fitness wear category. Quickly simply, the high quality of its core and new merchandise has driven demand and robust traffic to both stores and online. It achieved a 40% YoY growth in its e-commerce channel. The mitigate supply chain pressures, the Company has bolstered its inventory position with higher than normal levels to balance the momentum. The China lockdowns are only showing modest impacts as up to a third of its 71 stores in China were temporarily closed at some point, but they are starting to reopen again. Revenues continue to grow over 60% on a three-year CAGR basis. The Company plans on opening the majority of its 40 new stores in mainland China in 2022. The Company will continue to invest in the region and remains excited about its business in China. As for global supply chain, CEO McDonald commented, “When looking at the global supply chain, overall, the environment remains challenging. Ocean lead times are not improving, and air freight costs remain high. To address these issues, our team is carefully balancing our business momentum with time line uncertainties to help ensure we meet guest demand. This comes with a commensurate investment in air freight, which is important given we see satisfying guest demand as a priority.”

LULU Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for LULU stock. The weekly rifle chart rejected on the bounce attempt near the $314.96 Fibonacci (fib) level as shares fell through the weekly 200-period moving average (MA) at $272.63 before coiling back above it in an attempt to stabilize the price. The weekly 5-period MA is still falling at $287.64 followed by the 15-period MA at $322.68 as the weekly stochastic attempts a mini inverse pup at the 20-band. The weekly lower Bollinger Bands (BBs) sit near the $240.95 fib. The weekly market structure low (MSL) buy triggers on a breakout through $305.81. The daily rifle chart has a downtrend with falling 5-period MA at $278.85 followed by the 15-period MA at $292.23 on the stochastic min inverse pup falling through the 40-band. The daily lower BBs sit at $249.05. Prudent investors can watch for opportunistic pullback levels at the $263.77 fib, $253.07, $246.76 fib, $240.95 fib, $234.75 fib, $225.60 fib, $212.24 fib, and the $207.73 fib level. Upside trajectories range from the $314.96 fib level up towards the $360.83 fib level.