Retail

Is Lululemon's Valuation Holding It Back After Earnings Beat?

Chris Lange

Published: December 11, 2020 10:44 am

Lululemon Athletica Inc. (NASDAQ: LULU) released fiscal third-quarter financial results after markets closed Thursday. The company said that it had $1.16 in earnings per share (EPS) and $1.1 billion in revenue, compared with consensus estimates that called for $0.88 in EPS and $1.02 billion in revenue. In the same period last year, the company reported $0.96 in EPS and $916.13 million in revenue.

Management noted that these results demonstrate the strength of Lululemon across channels and markets, both in North America and around the world. Product innovations, investments in the e-commerce business, and the strategic acquisition of Mirror position the firm well to serve guests as their needs evolve across both physical and digital experiences.

Although the numbers were solid for this report, the stock ultimately fell. This goes to show that even a solid earnings beat can still be trumped by runaway valuations that are hard to justify.

Overall, revenues increased 22% year over year and 21% on a constant currency basis. Net revenue increased 19% in North America and increased 45% internationally. Total comparable sales increased by 19%, or 18% on a constant dollar basis.

Direct to consumer net revenue represented 42.8% of total net revenue, compared to 26.9% last year. Direct to consumer revenues increased 94% year over year.

On the books, Lululemon’s cash and cash equivalents totaled $481.58 million, and the capacity under its committed revolving credit facilities was $697.3 million.

Lululemon issued no guidance for the coming quarter, citing uncertainty regarding COVID-19. However, consensus estimates call for $2.41 in EPS and $1.6 billion in revenue for the quarter.

Lululemon stock traded down over 5% at $348.47 on Friday, in a 52-week range of $128.85 to $399.90. The consensus price target is $394.23.