Shares of Lululemon (LULU) Plunge Despite Strong Earnings
Athletic apparel maker Lululemon Athletica (NYSE:LULU) reported earnings on Tuesday, after the close with results outpacing 2Q20 expectations. On the top line, revenues of $903 million exceeded expectations of $844 million. On the bottom line, adjusted earnings per share of $0.74 comfortably outdid the Street’s $0.56 per share estimate.
Looking ahead, Lululemon CEO Calvin McDonald refused to give concrete guidance, as he cited that the Vancouver-based company would proceed with ‘cautious optimism’ amidst the uncertainty surrounding COVID-19 and its effect across the globe.
McDonald in his full statement specified, "We're pleased with our overall business results for the second quarter, as Lululemon increasingly lives into its Omni potential. As trends around the world are shifting to working and sweating from home with an increased focus on health and wellness, we believe 2020 is likely an inflection point for retail and for Lululemon. We are cautiously optimistic with regard to the second half of the year as we continue to navigate the uncertain environment."
The lack of guidance on this call could’ve called for a share decrease, as we saw the stock price dip after-hours. We saw a similar event at the end of Q1, as a lack of any forecast reflected poorly in the public markets for the apparel company.
Despite the less-than-ideal reactions that Lulu faced, the majority of financial institutions maintained Buy-equivalent ratings on the company. Investment banks Barclays and JPMorgan gave very optimistic price targets at $382 (from $347) and $387 (from $380), respectively. These Overweight positions can be attributed to “positive comps in both brick-and-mortar and E-commerce channels” and an extremely loyal consumer base that enables LULU "to drive more than 85% full-price selling,” according to Barclays.
Even international Swiss bank Credit Suisse, which perhaps missed the move into the print as it held a $315 price target before the release, now maintains a more sanguine price target at $350/share. They do give a slightly more modest target than their institutional peers however, as they believe the uncertainty surrounding the 3Q and 4Q doesn’t warrant a best-case scenario target price.
Overall, it’s extremely difficult to say what direction the Consumer & Retail industry will head as we wrap up 2020. However, we expect brick & mortar to have at least some semblance of life despite the ongoing pandemic, as people start to become more and more comfortable with stores and public areas. Ecommerce may be great, but not the be-all, end-all; and there’s definitely something to be said about the experience of shopping at a physical retailer.
Disclosure: At the time of publication, I have no positions in any of the securities mentioned in this article. I wrote this article myself and it expresses my own opinions. I am not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.