What’s happening: Lululemon Athletica is scheduled to report its fourth-quarter results after the closing bell on Thursday, March 26.
What happened: Shares of Lululemon have been under pressure in the lead up to the fourth-quarter earnings call. The athletics apparel giant closed all its stores in North America and Europe starting mid-March. Although management said they’d be looking to reopen the stores by the end of the month, this doesn’t seem possible considering the current coronavirus scenario.
Yet, as the company prepares to present its quarterly results, investor sentiment is turning positive for a number of reasons.
Details: Lululemon has topped estimates for both earnings and revenue every quarter for the past two years. Despite the coronavirus, the company’s quarterly estimates have seen upward revisions over the past three months. This is because Lululemon’s presence in Asia is limited and its fourth-quarter sales will not include the COVID-19 impact in North America and Europe.
The consensus revenue estimate for the fourth quarter is $1.38 billion, representing a healthy 17.9% year-over-year growth.
The estimate for earnings is $2.25 per share, with 21.6% growth from the same quarter in the previous year.
Why it matters: Lululemon has been a trendsetter in athleisure, forcing major sporting brands to include this category of apparel.
Archrival Nike saw its shares surge almost 10% after reporting strong results earlier this week. Shares of Lululemon could take the same trajectory in case the results are solid.
The athleisure giant had taken several initiatives to continue growing. It introduced outwear and was planning to double its menswear business by 2023. Moreover, the company had plans to expand in Asia, expecting a fourfold rise in its international sales. In the current situation, this will give Lululemon a path to grow while its operations in North America and Europe are impacted by the coronavirus.
The company’s digital business has performed well so far and could provide another avenue for growth, as people attend online yoga and other workout classes amid the current social distancing trend.
While the coronavirus-led economic slowdown will dampen Lululemon’s sales going ahead, the company had operating free cash flows of $521 million in the past twelve months.
How the shares have performed so far: Shares of Lululemon have lost around 19% in the past month amid the larger market sell off. In the last five trading sessions, however, the stock has gained 38%. Despite this surge, Lululemon’s shares closed at $192.74 yesterday, which is significantly lower than the record high of $266.20 achieved in February.
What to watch: Lululemon’s current share price is considered an attractive entry point. Any weakness from here could trigger buying, as will strong fourth-quarter results from the company. Investors will also be keeping a close eye on the company’s outlook. It remains to be seen whether the company issues any guidance for the upcoming quarter or decides to wait for the current situation to settle.