Lululemon (NASDAQ: LULU) was a crowd-pleaser in 2020 as it became one of the few retail companies to show surprising strength in the midst of a pandemic. Indeed, its stock grew 50% over the course of the whole year. Since the start of 2021 however, its stock has taken a tumble, losing around 15% of its value.
The main worry for investors going into this earnings call is that Lululemon could be losing the momentum that it has built upon since 2017. In particular, it could be affected by the return to normality that many are expecting once the majority of the population has been vaccinated. This normality could result in fewer sales of its sportswear as people let go of their pandemic habits such as working out at home or trading in their suits for loungewear. Such has been the case amongst stocks that performed well during the pandemic.
However, investors should keep in mind that Lululemon was doing well before coronavirus became an unwelcome part of our lives. Indeed, between 2017 and 2019 it managed to increase its annual revenue by around 50% from $2.7 billion to $4 billion. Its online shop was its saving grace throughout 2020 and as e-commerce has now taken on a role of its own for the future of retail, it is likely that Lululemon will continue to benefit going forward.
Lululemon's earnings report is estimated to be released at the end of March 2021, for the quarter which ended in January. In addition, this will be the release of the overall fiscal year report for 2020.
By going to Lululemon's investor relations page here, you can find all quarterly reports, webcasts, and press releases.
When Lululemon releases its earnings report, investors should pay attention to the company's revenue growth and earnings per share (EPS).
Lululemon stated that it is expecting its EPS growth to be in the high end of single digits. For the past two quarters, Lululemon has surpassed earnings estimates by more than 31%, but for the current quarter, the consensus estimates place EPS at $2.49 -- an 11% increase year-over-year (YoY).
Lululemon opened around 70 popup shops over the holiday season, up from 50 in 2019. This, alongside a continuation of high growth in online sales revenue -- which in Q3 made up 43% of Lululemons revenue, up from 27% the year before -- could be higher than expected. Consensus estimates currently sit at $1.6 billion for the quarter, with a growth of 18% YoY. The company's own outlook suggests a similar expectation with Q4 revenue growth to be in the mid- to high-teens.
Q4 revenue results might see higher than expected revenue growth following Lululemon's $500 million acquisition of Mirror last November. Mirror is Lululemon's attempt to foray into the world of home fitness, which could present some competition to the likes of Peloton, Nike, and even Apple. Mirror is expected to add $150 million to Lululemon's top line over the fiscal year, up from estimates of $100 million.
Unfortunately, this athleisure apparel company has had a difficult start to 2021 in terms of its stock price. With its 15% drop since the start of the year, plus the current market volatility, investors could be spooked enough to continue selling amid a wider market sell-off. This could eclipse the company's Q4 results if investors decide to sell their Lululemon shares before the end of March.
Those who believe that the company will continue to grow once the pandemic is over will likely find that this pull-back is a great buying opportunity. Lululemon has definitely been included within the pandemic-induced home fitness bubble, but it has the added benefit of being an apparel company. Moving forward, if the home fitness bubble bursts, Lululemon might end up being only slightly affected as the brand is now a part of athleisure fashion.
Lululemon remains an innovative company that can overcome unforeseen hurdles -- such as COVID-19 -- and investors in this company should not get spooked by the current market conditions. Just watch for the telltale signs of growth once the company's Q4/FY2020 report is published.
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