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Lululemon Q3 Earnings: What To Expect

Lululemon reports its Q3 earnings this week — will it be another earnings beat or will it fall victim to the broader market sell-off?

Lululemon (NASDAQ: LULU) is a sports apparel company, but it is expanding its horizons with ‘Mirror’, its latest product. ‘Mirror’ is, well, a mirror. It uses a digital interface and camera technology to bring an array of home workouts provided by qualified instructors right to you, and it doesn’t take up wasted space either. Watch out, Peloton

When is Lululemon’s earnings date?

Lululemon will report its Q3 results on Thursday, 9 December, 2021, at 16:30 pm Eastern Time. To access the earnings call, you can listen in by visiting Lululemon’s investor relations page here

What to expect from Lululemon’s earnings?

Lululemon has beat earnings in its last four consecutive quarters, so we could see more of the same. Lululemon far surpassed expectations in Q2, and raised guidance to $1.40 billion to $1.43 billion in net revenue and diluted earnings per share (EPS) was expected to be in between $1.28 and $1.33 when it was first forecast.

Some things to keep an eye on are any supply chain-related issues, inflation-linked consequences for its sales and production, and the rollout of its ‘Mirror’ product in Canada, and what impact, if any, it has made. 

Bull case

Like many other clothing brands, Lululemon initially launched women’s apparel but has since moved into men’s apparel as well, which has been highly successful.

Post-pandemic, many who may have turned to unhealthy habits or lifestyles due to restrictions are increasingly looking to get out, and become more active again as they return to gyms and the outdoors. Even with the return to work for many, people continue to work from home which still supports Lululemon’s loungewear clothing lines, so it kind of has the best of both worlds.

It doesn’t slow down there either. Its acquisition of Mirror in 2020 is allowing them to break into new analogous markets such as home fitness, which fits in perfectly with its workout apparel, which could encourage cross-selling and boost sales too.

The company also increased its minimum wage from $15 to $17 in Q2, excluding the business’ bonus structure. In line with its ambitious acceleration targets, Lululemon is looking to hire 8,000 new employees in 2021 and believes wage increases will not impact business costs in a meaningful way, given its model is based around innovation, rather than mass discounting. 

Bear Case

That being said, inflation and supply chain constraints still weigh on Lululemon’s business model, which relies heavily on merchandise. It will be interesting to see if it can navigate Q3 similarly to its blowout Q2 results, which sailed easily through logistics issues.

The company also faces being tangled up in the growth stock sell-off that is ongoing right now, and unless Lululemon outperforms on every business indicator, including full-year guidance, we could see a short-term decline. 

Takeaway

Overall, Lululemon looks to be in a favorable position to meet its forecast results. Even if there is volatile price action in the short term, the company looks set to outshine in the long run. Getting to the stage it’s at, valued as a $56 billion sports apparel company is no easy task to begin with, and with 61% revenue growth year-over-year in its most recent quarter, Lululemon is still in its early innings.

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