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Lululemon Stock Leaps After Q4 Earnings Beat, Solid 2022 Sales Outlook

Lululemon CEO Calvin McDonald said 'selective' price increases will offset the impact of higher freight and input costs.

Updated at 9:40 am EST

Lululemon Athletica  (LULU) - Get Free Report shares jumped firmly higher Wednesday after it posted stronger-than-expected fourth quarter earnings and said it could offset input cost increases with 'selective' price hikes for its athletic and leisure apparel.

Vancouver-based Lululemon said 2022 revenues would likely come in between $7.49 billion and $7.62 billion, with adjusted profits in the region of $9.15 and $9.35 per share, following a robust holiday quarter that saw sales rise 23% to $2.13 billion even as some of it north American stores remained hit by Covid-linked closures and reduced shopping hours.

Still, Lululemon's fourth quarter revenues fell shy of its own forecasts, while profits were largely within the range it predicted in early January. 

Supply chain snarls, particularly in ocean freight, has forced a move towards air cargo options in order to keep inventories fresh, the company said, with operating margins rising amid what it said was a '530-basis-point increase in air freight." 

Lululemon's gross margin narrowed by 50 basis points to a still-impressive 58.1% over the fourth quarter, and will contract further in the current period, by as much as 2.5%, due to air freight costs due to port congestion and capacity constraints.

"We plan to take some selective price increases over the course of the year on a small portion of our styles," CEO Calvin McDonald said during a conference call with investors late Tuesday. "Our pricing also factors in the value of our innovation and we will continue to monitor the competitive environment to ensure we maintain our price position relative to our key peers."

Lululemon shares were marked 5% higher in early Wednesday trading to change hands at $362.95 each, a move that would trim the stock's year-to-date decline to around 7.6%. 

"Importantly, after a year where investors were distracted by tougher than expected trends at ancillary businesses (like MIRROR), we were highly encouraged to hear that 2022 will be a back-to-the-core year, with the company excited about the pipeline of product in core apparel categories," said Credit Suisse analyst Michael Binetti, who carries an 'outperform' rating with a $450 price target on the stock.

"Air freight will continue to be an issue," he added. "That said, Lululemon noted that it will only be raising prices minimally -- and well below peers  -- which should allow for solid full price selling levels in the year."