Lululemon raises Q4 guidance, why is the stock trading lower?
AInvestMonday, Jan 8, 2024 12:06 pm ET
2min read
LULU --

Lululemon Athletica Inc. (LULU) recently announced an upward revision in its net revenue and earnings per share guidance for the fourth quarter of fiscal 2023. The company now anticipates net revenue in the range of $3.170 billion to $3.190 billion, representing a 14% to 15% increase compared to the fourth quarter of fiscal 2022. Diluted earnings per share are forecasted to be in the range of $4.96 to $5.00, surpassing the previous guidance. 

The positive outlook reflects the companys solid performance during the holiday season, with customers responding favorably to its product offerings. Lululemon continues to experience balanced sales growth across channels, categories, and geographies, allowing it to raise its guidance and close out another strong year.Multiple retail companies provided guidance this morning ahead of the big ICR Conference. While Abercrombie and Fitch, American Eagle Outfitters, and Lululemon have all raised their fiscal fourth-quarter outlooks, the market's response to Lululemon's revised guidance has been mixed. Shares of Abercrombie and American Eagle surged by approximately 7%, indicating strong investor enthusiasm.  Lululemon's stock dipped slightly by over 1% as investors considered the modest adjustment in forecasts alongside concerns about heightened competition in the athletic apparel sector moving forward. 

Another issue facing LULU is that the raised guidance remains in line with analyst consensus numbers. This suggests that Wall Street followers viewed LULU's initial outlook as being too low.

Holiday spending estimates have generally shown positive results, with online sales witnessing a 4.9% year-over-year growth to reach $222.1 billion in November and December, according to Adobe Analytics. Preliminary data from Mastercard SpendingPulse, which tracks in-store and online retail sales, indicates a 3.1% year-over-year increase in retail sales during the holiday season (excluding automotive sales) in the U.S. The guidance by retailers suggest a strong holiday season for the retail sector. 

As Lululemon's management engages with analysts and investors at the upcoming ICR Conference, market participants will be keen to understand the companys strategies to maintain its competitive edge in the face of intensified rivalry. Efforts to further enhance customer engagement, expand product offerings, and strengthen brand loyalty will likely play a crucial role in determining Lululemon's future growth trajectory. 

Shares of LULU slipped to $481 in the initial reaction to the news. It has recovered and rallied back to the $489 area. It is still down -0.43% on the session. The price action highlights the rich valuation as LULU trades at 34x. Raising guidance to be in line with analyst expectations is not going to excite investors. 

The company's ability to sustain its sales momentum, both in-store and online, while consistently delivering innovative and high-quality products will be key to securing long-term success in a highly competitive market. Investors should closely monitor Lululemon's performance and assess its strategies to gauge its investment potential in the coming quarters.

$LULU(LULU)

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.