Lululemon Athletica Stock Forecast: Athleisure does it again as earnings blowout sends LULU up 17%

Lululemon Athletica (LULU), the only heir to Nike's (NKE) success in the athletic wear realm, reported earnings late Tuesday that show why it has remained a must-own stock despite the market tanking over the past year. For the fourth fiscal quarter that ended in late January, Lululemon reported adjusted earnings per share (EPS) of $4.40. This came on revenue of 2.8 billion that beat the Wall Street consensus by at least $70 million.

LULU stock jumped 16.8% in Wednesday's premarket to $374, while the NASDAQ futures rose 1% on general market optimism.

Lululemon stock news

The athleisure brand wowed the market with its outlook for the full year as well. Management now sees $9.3 to $9.4 billion in full-year revenue and adjusted earnings per share in a range of $11.50 to $11.72. Last fiscal year Lululemon reported $10.07 in adjusted EPS on revenue of $8.1 billion.

Lululemon's adjusted EPS was 14 cents ahead of expectations, which is quite good, but many were at a loss for the market's reaction. It seems that Lululemon management's ability to continue performing despite weakness in other areas of the market has made it a standout. Of course, trend-following algorithms and zero-day options can probably be blamed for some of the excitement. 

Morningstar analyst David Schwartz called LULU stock overvalued due to its steadily falling gross margin. In the fourth quarter, Lululemon had a gross margin of 55.1%. "It does look like Lululemon had to resort to more discounting than normal to get that sales number that they posted," Schwartz said.

Schwartz also derided Lululemon's sales multiple. Based on the $374 price tag in the premarket, its forward price-to-earnings multiple is now at 32x, not bad for a stock in 2021 but somewhat high for a brand in 2023.

Comparable stores sales rose 15% YoY, and direct to consumer net revenue was up 37% YoY with online sales greatly helping Lululemon on all fronts. Management opened 32 new stores during the fourth quarter to reach a total of 655.

For the first quarter of fiscal 2023, the present quarter, Lululemon expects net revenue between $1.89 billion to $1.93 billion, which is above the prior $1.85 billion Wall Street consensus. Management also guided for adjusted EPS of $1.93 to $2, higher than Wall Street's $1.64 estimate.

Lululemon stock forecast

LULU stock blasted off high enough to take out the R5 just above $364.50. From the current level, expect bulls to try for the next available price target at December's $386.50 range high. Lululemon stock is now registering on the Relative Strength Index (RSI) at 80, far into the overbought range. LULU also filled the gap from the December 9 gap down, which is what markets love to do. There really is not much historical support at this level other than some halway support in the $340s, so bulls need to reach $386.50 to turn a new leaf.

LULU daily chart