$LULU Guides Down Again

Lulu Lemon Earnings

Lululemon dominated the 2010s with its signature yoga line but has had a rough 2024 so far with upped competition from Alo and Vuori, and concerns about the consumer. They botched a women’s launch this year but that shouldn’t give them the Crowd-strike effect.

Lulu is down about 49% on the year and is currently trading at multiples of 18x P/E and a 10.1x Enterprise multiple, this sets them both at around historical lows for the apparel company.

The biggest concern for Lulu is its US growth. Investors have developed a negative sentiment around the stock since they are seeing a slowdown in their US sales. Lulu has also seemed to be peaking out in terms of their product line growth as they are trying to expand into more product lines in order to support their womens line.

This pitch gives you the brief overview of the short play that was q1 earnings,

Last quarter’s earnings EPS was $2.54 which beat street estimates of $2.38, and revenue came in at $2.21 billion which also beat street estimates of $2.19 billion. It also announced that it would add $1 Billion to its buyback program.

The biggest takeaway from these earnings was that US growth hit a brick wall, US sales only grew 3%, versus a 17% growth in the same period last year.

For the second quarter, they guided below estimates of $2.54 billion, guiding between $2.40 and $2.42 billion. They guided EPS between $2.92 and $2.97, below estimates of $3.02. Their stock jumped 10% aftermarket from these earnings but this wasn’t enough to stop the stock from bleeding 16% throughout the summer.

For Q2 earnings, Lulu reported EPS of $3.15, smashing their earnings guidance and bringing a question on if they guided lower than they expected to pump their stock a bit. They reported revenue of $2.37 billion, coming in even lower than their guidance. Lululemon has projected a 6% to 7% increase in sales, which falls short of the 9.2% growth analysts had anticipated. Even after all that, the stock was up 4% aftermarket. This just goes to show how little investors expected.

Lulu has also lost some key talent, in May they lost their Chief Product Officer, Sun Choe, which sunk the stock more than 7%.

I think increased competition from Lulu was never a problem until now. They have failed to innovate, similar to Nike, and are losing to more niche brands. Until investors see growth again in the top line it will be hard to see this as an attractive stock, even with it trading at historically low valuation multiples. It’s hard to have belief in Lulu when they keep guiding down and leaving investors second guessing. Management has also pointed fingers towards the cautious spending environment that the consumer is in. The consumer wants value and in this environment, it’s hard to justify spending $70 on a pair of leggings, the value just isn’t there.