TThanks to strong and still bullish high and low numbers in the first half of the year, Lululemon (LULU) stock has been handsomely rewarded, rising over 40% in the past six months, compared to an average decline. 10% for its peers.
Meanwhile, during this time frame, the Nasdaq Composite and the S&P 500 rose by small double-digit percentages. The yoga sportswear specialist continues to dominate the retail business, employing a winning strategy that has firmly established LULU as a leader in the age-old health and wellness trend. But has the stock stretched too much? With stocks currently valued at 56 times forward earnings, LULU is trading at a massive premium to the retail sector which is valued at around 14 times forward earnings.
The company is expected to release its results for the third quarter of fiscal 2021 after the closing bell Thursday. With a focus on health and wellness, LULU has benefited from the increased focus on fitness that the pandemic has sparked. In its final quarter, the company acknowledged the growth associated with the pandemic, saying that “the pandemic has progressed, accelerated some of the customer behaviors that make our brand strong,” including “a general awareness of the condition. physical “,” to be well, to live well “and” the importance of functional clothing “.
Last week, BTIG analyst Camilo Lyon ranked Lululemon among his favorite retail stock picks, noting that the company is well positioned to respond to strong trends in holiday shopping demand. âThe stores are performing well, especially as consumers look to vacation shopping with all the styles available, as we’ve noticed that online inventory seems light,â noted Lyon. The question is whether the company can release the kind of advice Thursday that suggests its privileged position and ability to drive margin expansion and operating leverage is sustainable.
For the quarter that ended in October, Wall Street expects the Vancouver-based clothing maker to earn $ 1.40 a share on $ 1.44 billion in revenue. This compares to the quarter last year, when earnings were $ 1.16 per share on revenue of $ 1.12 billion. For the full year, ending in January, profit is expected to be $ 7.51 per share, up from $ 4.70 a year ago, while annual revenue of $ 6.27 billion is expected to increase 42.5% year over year.
The projected revenue growth of over 42% full year underscores the strength of LULU’s business and loyal customer base, despite increased competition from Nike (NKE) and Under Armor (UA). It showed up in the second quarter results as well, with the company beating both the top and bottom results by + 9% and + 39%, respectively, compared to Street’s estimates. Second-quarter revenue jumped 61% year-on-year to $ 1.45 billion, surpassing last year’s $ 903 million mark, while adjusted earnings per share rose 123 % year-on-year to $ 1.65.
Notably, Lululemon’s second-quarter online revenue, which increased 8% in the quarter, reached $ 597.4 million, or more than 41% of total revenue. Equally impressive was second quarter gross profit which rose to $ 842.7 million, or 58.1% of net sales, thanks to a 390 basis point increase in gross margin. The company’s cost-cutting efforts, along with innovative product launches, have also given Lululemon tons of profit.
With sustained market share and growth prospects, the company has shown that it has no intention of relinquishing its lead in the sports leisure market. The company’s momentum is strong enough to expect another beaten and upward quarter and more market share gains. The question is, is all of this good news already built into the stock? We’re about to find out.
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