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Lululemon reports upbeat Q1, boosts forecast

 

Friday, June 03, 2022

The news shaping the markets today

The Russia-Ukraine war entered the 100th day, with Moscow now being in control of 20% of the overall Ukrainian territory. After hitting highs through the week, WTI crude oil futures traded slightly lower this morning.


Singapore’s S&P Global PMI surged to a record high of 59.4 in May, from 56.7 in the previous month, driven by the easing of covid-19 restrictions. However, concerns related to the spread of infections kept the SGD/USD forex pair under pressure.


Japan’s services PMI rose to a six-month high of 52.6 in May, from a preliminary reading of 51.7, sending the JPY/USD pair higher in forex trading this morning.


Australia’s AiG construction PMI fell to 50.4 in May, from 55.9 a month ago. The latest reading signalled the slowest growth in the country’s factory activity since January’s contraction, which exerted pressure on the AUD/USD forex pair.


South Korea’s consumer prices rose 5.4% year-over-year in May, recording its fastest pace in around 14 years. Despite this, the KRW/USD pair rose in forex trading this morning on an improvement in market risk appetite.

 

What’s happening: Shares of Lululemon Athletica rose in after-hours trading on Thursday, following the company’s strong results for its first quarter.

What happened: Although several large apparel retailers, including Under Armour and Adidas, indicated a hit to their businesses from covid-19 restrictions in China, Lululemon experienced only a modest impact.

The company also boosted its projections for the full year amid strong demand for athleisure wear.

How were the results: The company reported strong growth in revenue for the first quarter, with both top- and bottom-line metrics exceeding market views.

  • Revenue grew 32% year-over-year to $1.61 billion, beating the consensus estimate of $1.53 billion.
  • Earnings came in at $1.48 per share, exceeding the Street expectations of $1.43 per share.

Why it matters: Several US retailers have hiked prices on a select range of products to combat rising costs due to global supply chain issues.

Despite the price hikes, some higher-income customers have continued purchasing products from Lululemon, which helped the premium sportswear maker to sustain the sales momentum it achieved during the pandemic despite US inflation spiking to a four-decade high.

Lululemon opened five new company operated stores during the first quarter, taking the total to 579 stores by the end of the quarter. Revenue in North America jumped 32% year-over-year, while international revenues climbed 29%. The company’s comparable store sales grew 28% year-over-year, while direct to consumer revenues rose 32%, representing 4% of overall revenues during the latest quarter.

Lululemon projected Q2 revenues between $1.75 billion and $1.775 billion, higher than the consensus estimate of $1.71 billion. Management guided to earnings of $1.82-$1.87 per share, also ahead of market views of $1.77 per share.

For fiscal 2022, the company raised its guidance for revenues to between $7.61 billion and $7.71 billion and earnings to $9.42-$9.57 per share, from its prior forecast of $7.49 billion and $7.62 billion in revenues and earnings of $9.15-$9.35 per share.

Lululemon also projected its 2022 adjusted profits between $9.35 and $9.50 per share, above market views of $9.28 per share.

How shares responded: Lululemon’s shares gained 2.1% to $309.00 in extended trading on Thursday, following the release of quarterly results. The stock had jumped to record highs during the second half of last year but has tumbled more than 30% over the past six months.

What to watch: Investors will keep an eye on the supply chain disruptions and rising inflation levels.

The markets today

European stocks will be in focus today ahead of a basket of economic reports from the common bloc

Context: European markets closed higher on Thursday, following the release of fresh data on inflation.

Details: Earlier during the week, the Eurozone reported consumer price inflation at 8.1% for May, representing the seventh straight month of record highs. The Eurozone released producer price inflation on Thursday, which also came in at an all-time high of 37.2% in April, accelerating from 36.9% in the previous month.

Investors are closely monitoring the ECB’s actions to get some insights into the pace of rate hikes to combat surging inflation levels.

The ongoing war in Ukraine also remains a major concern, as it is worsening global supply chain issues.

The pan-European Stoxx 600 rose 0.57% to close at 441.23 on Thursday, with construction and material shares leading the gains. However, a wider selloff in energy stocks limited the overall gains during the session. Germany’s DAX 40 climbed 1.01%, while the French CAC 40 added 1.27%. Financial markets in the UK were closed on Thursday for the Spring Bank Holiday and on Friday for the Platinum Jubilee.

What to watch: Traders await the release of data on services PMI, composite PMI and retail sales from the Eurozone today. The S&P Global services PMI is expected to decline to 56.3 in May, from 57.7 in April. The composite PMI is projected to decline to 54.9, from the prior month’s reading of 55.8. Eurozone’s retail sales had contracted by 0.4% in March and is expected to grow by 0.3% in April.

The release of nonfarm payrolls report from the US will also remain in focus today, with the country expected to add 325,000 jobs in May.

Other Markets: US indices closed higher on Thursday, with the Dow Jones, S&P 500 and Nasdaq 100 up by 1.33%, 1.84% and 2.75%, respectively.

Support & resistances for today

Technical Levels News Sentiment
GBP/USD – 1.2577 and 1.2588 Positive
Nikkei 225 – 27711.00 and 27739.50 Positive
CAC 40 – 6490.64 and 6511.27 Positive
FTSE 100 – 7518.94 and 7552.48 Positive
WTI Crude Oil – 116.58 and 116.82 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0758, 0.10%) Dow ($33,239, 0.05%) Brent ($117.35, -0.2%)
GBP/USD (1.2576, -0.02%) S&P500 ($4,177, 0.03%) WTI ($116.55, -0.3%)
USD/JPY (129.79, -0.07%) Nasdaq ($12,895, 0.01%) Gold ($1,873, 0.1%)

What else to watch today

Germany’s balance of trade, car registrations, services PMI and composite PMI, Russia’s services PMI, composite PMI, business confidence and total vehicle sales, France’s industrial production, retail sales, services PMI and composite PMI, Turkey’s inflation rate and producer inflation, South Africa’s S&P global PMI, Spain’s services PMI and composite PMI, Italy’s services PMI, composite PMI, and car registrations, Mexico’s car production and auto exports, India’s value of loans, value of deposits, foreign exchange reserves and money supply M3, Brazil’s industrial output, services PMI and composite PMI, Canada’s productivity, as well as US services PMI, composite PMI, ISM services PMI and Baker Hughes crude oil rigs.

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