Lululemon Athletica (NASDAQ:LULU) had been on fire ahead of earnings. The stock was up more than 150% from the March lows before reporting quarterly results. After the figures were released, Lululemon stock slipped a bit from its highs.
That could be the perfect buying opportunity for interested investors. Some will argue that Lululemon isn’t a buy, as the stock has lost momentum after the company reported what must have obviously been a lackluster number.
Au contraire, one might counter.
While Lululemon reported a solid but somewhat mixed quarter, the stock has been bouncing lately. Given that action, I would say it is doing an excellent job consolidating its multi-month gains. It was a mistake for Lululemon’s stock to fall 50% from its February high to the March low and bears are paying the price now.
Lululemon Can Thrive Regardless of a Virus
Those who argue that earnings weren’t that good have a solid case to make. The company reported earnings of 22 cents per share, missing expectations by a penny. Revenue of $651.9 million sank 16.7% year-over-year and missed estimates by more than $40 million.
“I thought you said this company was good?”
The quarter ran through April 30. There probably couldn’t be a worse measure of how a company performed than through that date. We’ve seen a robust recovery since then, with the “reopening America” trade and mindset setting in.
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Lululemon may have seen a 16% drop in the quarter, but there were many positives to focus on.
E-commerce sales burst higher by 68% year-over-year to $260 million. That made up more than 50% of revenue, almost double last year’s figure of 26.8%. Obviously online sales spiked as store locations were closed, but it goes to show that, even amid a global pandemic, consumers were still buying Lululemon.
This is reminiscent of Nike (NYSE:NKE), which saw a similar reaction. When stores began to reopen, sales burst as pent up demand drove customers through the door. In the meantime though, online sales were strong. Lululemon saw the same thing, based on prior comments from management.
This is a situation where the winners separate themselves from the losers. The best rise to the top, taking market share along the way. The losers sink to the bottom, losing market share and eventually running out of time completely.
Case in point, this comment from the conference call: “In the Athletic Apparel space, a category that is performing better than other apparel categories, we saw one of our largest quarterly gains in market share in recent years according to NPD data.”
Trading Lululemon Stock
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E-commerce is such an important part of business. We’re seeing those that adapt to online sales thrive and those that don’t, struggle to survive. That’s true for big-box retailers too, as Costco (NASDAQ:COST), Target (NASDAQ:TGT) and others successfully pivot their omni-channel strategies.
In any regard, I likely don’t have to do much to convince readers that Lululemon is a great brand. But is it a great stock? So far, the answer has been yes.
That’s even as shares command a big valuation, trading at a very full 70 times this year’s earnings estimates. It’s not a cheap stock, but it’s one we want to own for the long term.
For the year, analysts expect roughly flat revenue growth (up 0.8%) alongside a 13% drop in earnings. 2020 is turning into a throwaway year, with investors shifting their focus to 2021. That’s when consensus expectations call for revenue to grow 25% and for earnings to jump almost 50%.
We are used to strong growth and eventually we’ll get it back with Lululemon stock. Investors realize this year and quarter are short-term blips and that business will get back to full strength soon enough.
Technically speaking though, a dip would be nice. Specifically, a dip into the $250 to $270 zone would be attractive, along with a test of the 50-day moving average.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
