Based in Canada, Lululemon Athletica Inc. (NASDAQ: LULU) is one of the most popular Athleisure apparel and accessory companies in the world, operating 574 retail stores globally.
However, given the surging inflation rates and decline in discretionary consumer spending, Lululemon’s financials have taken a hit lately. This has caused the Nasdaq-listed stock to plunge 23.37% year-to-date.
Highly anticipated Q2 results
Lululemon released its fiscal second-quarter (ended in July) earnings report last week. It reported revenue of $1.9 billion, an increase of 29% year-over-year.
Analysts expected the company’s revenues to rise 22% year-over-year to $1.77 billion in Q2. Due to share buybacks, LULU grew earnings by 33% to $2.2 per share, surpassing estimates of $1.86 in the July quarter.
The retail giant opened 22 company-operated stores in Q2 and grew its total store count to 600 at the end of the July quarter.
Going forward, the company’s profit margins will most likely take a hit due to the increased air freight costs amid continuing global supply chain disruption. Lululemon’s gross and operating margins declined sequentially in the fiscal first quarter, and this trend is expected to continue in the upcoming quarters.
Lululemon and its ambitious growth plan
Earlier in April, Lululemon announced its most aggressive growth plan to date, the Power of Three ×2 strategy. The company aims to double its 2021 total revenue to $12.50 billion by 2026 through improved product innovation, market expansion, and guest experience. It is currently targeting a total net revenue CAGR of 15% between 2021 and 2026.
LULU opened two new stores and a local website in Spain in July, in line with its market expansion plans. Also, the company plans to multiply its 2021 international revenues four times by 2026 and double its men’s and digital revenues over this period. Moreover, the Chinese market is slated to play a major role in LULU’s five-year growth plan.
Regarding this, LULU CEO Calvin McDonald said, “The success of our Power of Three formula in delivering on our 2023 growth strategy supports our goal to double the business over the next five years … We remain early in our growth journey, with our strong product engine, proven ability to create enduring guest relationships, and significant runway in core, existing, and new markets. Following our compelling track record of delivering against our goals, I am excited about taking our growth strategies to the next level to serve more and more guests around the world.”
Industry headwinds
Many analysts have reservations regarding the company’s ability to fulfill its growth targets. Jefferies analyst Randal Konik downgraded the stock to “Sell” last week, citing industry headwinds.
This comes as major clothing retailers have reported a substantial “inventory overhang,” due to the 40-year high inflation rate. With apparel prices up 0.8% sequentially in June, major retailers have tremendous excess inventory in warehouses. As most people cut back on discretionary spending, overall apparel sales are expected to remain bleak.
Konik expects LULU to downgrade its revenue guidance as the company navigates through the industry headwinds. The precarious Covid situation in China, resulting in multiple lockdowns, will most likely harm LULU’s sales in the country during the upcoming months.
The bottom line
Lululemon is not the first company to feel the pinch of the volatile macroeconomic backdrop. Several high-end apparel companies, including Nordstrom (NYSE: JWN) and Macy’s (NYSE: M), had to reduce their retail prices in order to boost their inventory turnover. While Lululemon’s near-term growth prospects seem bright, the company might not be able to meet its five-year targets as the economic headwinds persist.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
Platinum is a precious metal traded in the forex market, used for jewellery and electronic items.
The chemical instrument is symbolised as PT and has atomic number 78.
Primarily produced in South Africa and Russia, platinum is solid and durable metal in comparison to gold.
Being a valuable item and available in scarcity, platinum is costly.
Similarly, platinum is also a kind of investment stored and traded online for-profits—a kind of insurance policy against dollars.
Platinum supply and demand is concentrated due to its use in limited countries.
Happy Friday to all Traders, Investors, Analysts!!!!
This week would be one of the crazy week in Stock Market history.
As you may have read about it already, GME Stock Price manipulation and Short Squeeze by the reddit group WallStreetBets.
It has been acknowledged by the White House and it\’s under investigation.
To be a good trader, you need to have access to information; correct information will help you make the right decision regarding a particular stock.
It was developed by J.Peter Steidlmayer, as a tool to evaluate the market value as the day proceeded.
He wanted to show the graph with price in a vertical axis and time in the horizontal axis.
The graph was in a bell-shape fatter at the moderate prices with activity trailing off, and volume reduced at extremely higher and lower prices.
The market profile graph was shown to the public in 1985 as a part of the Chicago Board of Trade.
The trade was categorized into four pits local, commercial, member filling order for public and member filling order for the member.
