Financial Trading Blog

Lululemon Earnings Preview



Athleisure sales have remained resilient so far this year, but can that momentum continue in the more crucial second half of the year.
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The good news…

Last quarter, Lululemon raised its guidance for the year and guided increased sales for the current quarter when compared to the prior year. The company's forecasts are actually slightly below the market's current assessment, meaning there is a chance that it could beat its own expectations.

The is that Lululemon will report EPS of $1.86, after forecasting $1.82-1.87. On the top line, the consensus is even better, expecting $1.8B in sales compared to Lululemon's own forecast of $1.75-1.78B in sales.

 

Keeping things going

Where analysts are a little worried is around the company's relatively higher price point, and trends seen by competitors saw consumers looking for better pricing. Rivals such as UnderAmor, Adidas, and FootLocker either missed estimates or cut guidance. If Lululemon has to cut guidance now right after raising it, there might be some concern about management, and that could further drag on the stock price.

The main metrics that investors tend to track with Lululemon are comparable sales, which typically rise in the double-digit level. Direct-to-consumer sales typically outperform retail sales, which is another metric that could get investor attention. With the latest trends in retail sales, there might also be some increased interest in inventory, with a build potentially sending worries that the company might have to cut prices.

 

Lulu's upside lacked momentum

Lululemon shares trade between the 200 and 50-day averages of $300 and $335 respectively. Notably, the recent upward attempt has failed to reach the key SMA, and marked resistance at $330 as the trend saw exhaustion. Coincidently, the 50% Fibonacci retracement of the $410-$250 leg lies at the same level, forming a cluster.
Short-term, Lululemon faces resistance at the 38.2% Fibonacci retracement of $315 and support at the 50-day average of the psychological $300 level.
In case the bottom breaks, $280 is the next major support before sliding to the previous low of $250. But if the top weakens instead, $330 will the golden pocket at $350 would be exposed should the interim resistances at $330 and $335 give in.
lulu

 

Key takeaways
Lululemon raised its guidance for the year and may beat its own EPS and sales expectations. The firm might feel the heat from competitive pressures due to its higher price point as rivals either missed estimates or cut guidance. Investors will want to see whether the company cuts guidance or not, and will keep a close eye on inventories to get a sense of the metric. Otherwise, comparable and direct-to-consumer sales might raise some concerns about management.

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