Lululemon Surges On Q3 Report: Analysts Step in To Support Market

Key Points

• Lululemon's strong quarter and guidance have the market rallying higher in 2024 and set up to rally in 2025. 
• Analysts are lifting their price targets and leading to the high-end of a multi-year trading range. 
• Guidance is likely cautious given the trends; outperformance is expected in Q4 despite the increased guidance. 

Lululemon NASDAQ: LULU continues to face headwinds like other retailers, but its Q3 results prove the business's durability and the strength of its growth trajectory. Among the report's highlights and market response are the analysts who are overjoyed by the news. Although one outlier says to sell the stock, the remainder of the data is bullish, with 19 of 19 price target revisions increases, including the one naysayer. 

Where do the analysts see this stock heading? After excluding the high and low, the average of 17 analysts is $401, with 70% of the targets, including the high of $440, above the consensus. The takeaway is that analysts see this stock advancing by 15% to 20% over the next twelve months, and the sentiment trend is upward; the analysts will likely continue to lift the target range as the year progresses. 

Lululemon’s  Strong and Flexible Business Delivers Results

Lululemon had a robust quarter, doubling the retail industry average with top-line growth of 9% and outpacing MarketBeat’s reported consensus by 170 basis points. A global comp of 4% drove the strength, 3% on an FX-neutral basis, with international strength offsetting weaker results in the Americas. Revenue in the Americas grew by 2%, with new stores offsetting a 2% decline in comps. International segment sales grew by 30% FXN on a 22% comp store gain and are expected to remain strong and underpin growth in 2025. 

Margin news is another area of strength. The company widened its gross and operating margins, gaining 40 basis points at the gross level and 70 at the operating level, to deliver leveraged bottom-line results. Diluted earnings of $2.87 are up 13% adjusted for the extra week and outpaced the consensus by $0.15, with margins expected to remain strong as the year progresses.

The guidance for Q4 and the FY was improved because of the Q3 strengths and retail trends, putting the target for Q4 growth at a steady 8% to 10% and both the Q4 and FY targets above the analysts' consensus forecast. 

Among the critical details is the cash flow. The company is growing and improving the quality of its cash flow, allowing it to repurchase shares aggressively while maintaining a solid balance sheet and business health. At the end of the quarter, balance sheet highlights include increased cash compared to last year, an 8% inventory increase, and current and total assets. Liability is also up but offset by asset gains, leaving equity up by 13%. 

Regarding the repurchases, buyback activity reduced the count by 3% compared to last year, 1.5% YTD, and is expected to continue at the Q3 pace in Q4 and F2025. The board increased the authorization by $1 billion to put the total available at $1.8 billion, sufficient for four quarters at the current pace. 

Lululemon Stock Price Reaches an Inflection Point

Lululemon’s stock price action following the release is bullish, but the market has hurdles. The price action surged to roughly $375, aligning with a potentially strong resistance point at the middle of a multi-year trading and consolidation range. Because of the gap formed by the action, the market may pull back from this level before moving higher. The market could return to the prior session’s open near $345 in that scenario. 

However, the strong upward movement and analysts' response could provide enough momentum for this market to move higher without a price pullback. The critical resistance target is near $375 and could be broken soon. In that scenario, this market will face another hurdle near $400, likely less strong than $375 and easily surpassed, opening the door to a bigger move to the high end of the analysts’ range and then the high end of the long-term trading range.