Lululemon Athletica Earnings: LULU stock surges 10% on continued growth

• Lululemon will release fiscal Q2 earnings on September 1.
• Wall Street expects EPS of $1.87 on revenue of $1.77 billion.
• LULU has beaten all eight of its past EPS consensus figures.

UPDATE: LULU stock bounced up 9.8% in Friday's premarket following Lululemon's solid quarterly results released after the close on Thursday. The athleisure retailer reported fiscal Q2 GAAP earnings per share of $2.26 on revenue of $1.87 billion. The EPS figure was 39 cents ahead of consensus, or 21%, and revenue came in nearly 6% ahead or $100 million. Management boosted the stock's prospects by offering up healthy guidance for the coming third quarter. For that quarter guidance was placed between $1.78 billion and $1.805 billion for sales and GAAP EPS between $1.90 and $1.95. This would mean 23% YoY revenue growth and 19% YoY EPS growth. Shares are trading at $323.28 in Friday's premarket after closing on Thursday at $294.45.

Expectations are high for Lululemon Athletica's (LULU) fiscal second quarter results scheduled for Thursday. Wall Street expects Lululemon to do $1.87 in GAAP earnings per share (EPS) on $1.77 billion in revenue. The athleisure powerhouse did EPS of $1.65 on $1.45 billion in the same quarter last year, so the consensus forecast amounts to a growth rate of 13% for earnings and 22% for sales.

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Despite a challenging environment, July's decent MoM inflation figure and the following jobs report with more than half a million newly employed helped LULU retake some ground lost in the first half. This has helped LULU stock gain about 17% since the start of July, although Lululemon is down from the $330s of mid-August.

Lululemon earnings news

Lululemon has made a name for itself with analysts. Its pattern of focusing on ecommerce gains during the pandemic allowed it to continue growing revenue at a time when many brands were flailing. Now that in-person shopping has returned, the analyst crowd expects premium brands like Lululemon to continue to see major gains in traditional retail. LULU rarely offers up a surprise on the earnings front. Over the past eight quarters the company has beaten consensus on the bottom line every time. On revenue it has done the same seven out of the past eight quarters.

Calling it a top retail pick earlier this summer, Key Banc has led the charge in giving the benefit of the doubt to management:

"In our view, LULU is a best-in-class example of effective omnichannel execution. Lululemon’s e-commerce business accounts for ~45% of revenue; in 2021, LULU saw strength in physical (+70% y/y lapping lockdowns) and digital (+22% y/y), and in 1Q22 e-commerce increased +32% and comps grew +24%."

This quarter may warrant a greater focus on how the brand deals with higher inflation, but analysts have already steered projections toward softer EPS gains. Analysts expect $9.43 for the current full fiscal year (fiscal 2023) and $11.04 for the following fiscal year (fiscal 2024).

Jefferies has been the major Debbie Downer among the analyst community. Jefferies pointed out back in July that Lululemon needs to enter new apparell categories in order to keep growing its revenue at a robust pace. Without the most prominent sport stars among its sponsorships, compared with heavyweight brands like Nike and Adidas, the investment bank said Lululemon was at a major disadvantage outside of the yoga and training segments it is most known for. They cut its rating to Underperform and slapped it with a price target of just $200, which would require LULU stock to plunge by a third.

Lululemon stock forecast

Swing highs from back in November 2021 and April of this year place the top trend line just below $350. That is the ultimate price target for bulls in the near term. A bad miss or retracted guidance could send LULU stock down to support at $260. That level was acting support during early July.

Accumulation has been positive since May, which tends to mean that institutions have been dollar cost averaging their way into larger positions. This is always a good sign. LULU share price short-term resistance is at the 20-day moving average just below $319. Short-term support should exist at the 50-day moving average near $301.

LULU daily chart