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Why Is Lululemon (LULU) Up 3.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Lululemon (LULU). Shares have added about 3.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lululemon due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

lululemon Surpasses Earnings and Sales Estimates in Q4

lululemon reported strong fourth-quarter fiscal 2022 results, with revenues and earnings surpassing the Zacks Consensus Estimate and our estimates. The top and bottom lines also improved year over year. The results were driven by the continued business momentum, which led to robust sales. The company also outlined its guidance for the first quarter and fiscal 2023.

lululemon’s fiscal fourth-quarter adjusted earnings of $4.40 per share increased of 30.6% year over year and beat the Zacks Consensus Estimate of $4.25 and our estimates of $4.22. The company’s adjusted earnings improved 25% on a three-year CAGR basis.

On a GAAP basis, earnings per share (EPS) of 94 cents for the fourth quarter of fiscal 2022 declined from $3.36 reported in the fourth quarter of fiscal 2021.

The company’s quarterly revenues advanced 30% year over year to $2,771.8 million and surpassed the Zacks Consensus Estimate of $2,695 million and our estimates of 2,620.4 million. On a constant-dollar basis, revenues improved 33%. On a three-year CAGR basis, net revenues increased 26%. Revenue growth was mainly driven by the strong momentum in its business, backed by a favorable response to its products.

The company’s net revenues grew 29% in North America and 35% internationally. On a three-year CAGR basis, revenues improved 24% in North America and 39% internationally.

lululemon’s total comparable sales rose 27% year over year and 30% on a constant-dollar basis. Comps were driven by robust traffic trends in both stores and e-commerce, with more than 30% traffic growth at stores and more than 45% growth in e-commerce. On a three-year CAGR basis, traffic was up 7% in stores and 40% in e-commerce.

Direct-to-consumer net revenues climbed 37% (up 39% on a constant-dollar basis). In the digital channel, revenues accounted for 52% of the company’s net revenues compared with 49% in the fourth quarter of fiscal 2021.

Digital revenues amounted to $1.4 billion in the fiscal fourth quarter. The company’s e-commerce business delivered an impressive performance, with revenues increasing 46% on a three-year CAGR basis. Digital comps increased 39% on a constant-dollar basis.

In the company’s store channel, sales increased 26% year over year and 10% on a three-year CAGR basis. At the store level, comparable store sales increased 15% and 17% on a constant-dollar basis. Management highlighted that store productivity in the fourth quarter of fiscal 2022 continued to trend above the 2019 level.


The gross profit improved 23.6% year over year to $1,527.6 million. However, the gross margin contracted 300 basis points (bps) to 55.1%. The adjusted gross profit increased 28.7% to $1,590.5 million, while the gross margin declined 70 bps to 57.4%. The decline in the gross margin can be attributed to a 50-bps deleverage from foreign currency, offset by a 30-bps decline in the product margin. The increase in product margin was driven by lower air freight expenses, partially offset by higher markdowns in the merchandise mix.

SG&A expenses of $803.1 million increased 25.1% from the year-ago quarter. SG&A expenses, as a percentage of net revenues, were 29%, down 120 bps from the 30.2% reported in the prior-year quarter due to the leverage in the operating channels and a gain on foreign exchange. This was somewhat offset by higher corporate SG&A, and a slight increase in depreciation and amortization.

Income from operations declined 47% year over year to $314.4 million. The operating margin fell significantly to 11.3% from the prior-year quarter’s 27.7%.

The adjusted income from operations rose 33% year over year in the fourth quarter of fiscal 2022 to $785.3 million. The adjusted operating margin contracted 50 bps to 28.3%.

Store Update

In the fiscal fourth quarter, the company opened 32 net new stores, bringing the total net new stores to 81 in fiscal 2022. As of Jan 29, 2023, LULU operated 655 stores.

In first-quarter fiscal 2023, the company expects to open 5-10 net new company-operated stores. Management expects to open 45-50 net new company-operated stores in fiscal 2023, along with the completion of 25 co-located remodels. The total store openings in fiscal 2023 will imply a square footage increase in the low-double digits.

The store openings in fiscal 2023 are likely to include 30-35 stores in international markets, with the majority of these planned to be opened in China.


lululemon exited the quarter with cash and cash equivalents of $1,154.9 million and stockholders’ equity of $3,148.8 million. At the end of fiscal 2022, the company had $393.5 million remaining under its committed revolving credit facility. At the end of the fiscal fourth quarter, the company’s inventories grew 49.8% to $1,447.4 million.

lululemon expects the inventory growth rate at the end of the fiscal first quarter to increase 30-35% relative to last year. It also expects inventory growth to be in line with sales growth in the second quarter of fiscal 2023.

In the fourth quarter of fiscal 2022, management repurchased 213,000 shares at an average rate of $323 per share. As of Jan 29, 2023, the company had $744 million remaining under its recently authorized $1-billion share repurchase program.


For the first quarter of fiscal 2023, management anticipates net revenues of $1,890-$1.930 billion, indicating 17-20% year-over-year growth. The company expects the fiscal first-quarter gross margin to expand 290-320 bps year over year.

The gross margin is expected to benefit from lower air freight expenses, offset by currency headwinds and strategic investments in the supply chain and distribution centers. Further, lululemon anticipates a 60-80 bps deleverage in the SG&A expense rate for the fiscal first quarter, driven by higher investments.

lululemon expects the operating margin to increase 200 bps in the fiscal first quarter. The company projects EPS of $1.93-$2 for the fiscal first quarter. The company estimates an effective tax rate of 30% for the fiscal first quarter.

LULU also provided guidance for fiscal 2023. It anticipates net revenues of $9.300-$9.410 billion, representing year-over-year growth of 15-16%. This represents slightly better sales compared with its target under the Power of Three x2 growth plan.

lululemon anticipates a gross margin increase of 140-160 bps for fiscal 2023. The increase is expected to mainly result from lower air freight expenses. For fiscal 2023, the company expects air freight to decline 150 bps year over year. However, the company expects fiscal 2023 markdowns to be in line with last year and fiscal 2019. The company’s gross margin guidance includes a 20-bps deleverage related to its multi-year distribution center project.

For fiscal 2023, LULU expects the SG&A rate to deleverage 120-140 bps year over year. The deleverage is likely to be driven by increased investments to support market expansion, improve the guest experience by enhancing omni-channel capabilities and making foundational investments to support future growth. Also, the company anticipates higher depreciation in fiscal 2023 due to ongoing and prior investments.

The company expects the operating margin for fiscal 2023 to increase 20-40 bps compared with last year. The increase is expected to be slightly higher than the Power of Three x2 long-term target of a modest expansion annually. lululemon expects an effective tax rate of 30% for fiscal 2023. GAAP EPS is projected to be $11.50-$11.72 for fiscal 2023.

lululemon expects capital expenditure of $660-$680 million for fiscal 2023, suggesting 7% of revenues. This is in line with the company’s power of three X2 initiative’s target of 7-9% of revenues.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 17.09% due to these changes.

VGM Scores

At this time, Lululemon has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lululemon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Lululemon belongs to the Zacks Textile - Apparel industry. Another stock from the same industry, Guess (GES), has gained 0.6% over the past month. More than a month has passed since the company reported results for the quarter ended January 2023.

Guess reported revenues of $817.78 million in the last reported quarter, representing a year-over-year change of +2.2%. EPS of $1.74 for the same period compares with $1.14 a year ago.

Guess is expected to post a loss of $0.28 per share for the current quarter, representing a year-over-year change of -216.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.6%.

Guess has a Zacks Rank #5 (Strong Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.

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