Investor confidence in Lululemon LULU has slipped because the athletic attire chief contends with slower development and tightening margins.
Slowing Lululemon’s enlargement has been mounting price pressures, most notably greater import tariffs. That stated, traders are actually questioning if Lululemon can change this ailing outlook narrative when it studies its This autumn outcomes after-market hours on Tuesday, March 17.
Efficiency Overview & CEO Search
Main as much as its This autumn report, LULU shares have dropped 50% within the final yr and are buying and selling close to a 52-week low of $156.
Regardless of constantly exceeding EPS expectations, as illustrated by the inexperienced arrows within the Worth, Consensus, and Shock chart, the steep decline in Lululemon’s inventory continued after offering weaker-than-expected This autumn steerage in September as a consequence of softer demand in its core U.S. market.
Weaker U.S. gross sales and shareholder strain led to the resignation of former CEO Calvin McDonald, who stepped down on the finish of January. McDonald will stay an advisor via the top of the month, as Lululemon’s board searches for his successor, with two senior executives being in cost as interim co-CEOs in the interim.
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Lululemon’s This autumn Expectations
Lululemon’s This autumn gross sales are anticipated to be nearly flat from a yr in the past at $3.6 billion. On the underside line, This autumn EPS is anticipated at $4.77, a 22% drop from $6.14 per share within the prior yr quarter.
Nonetheless, Lululemon has exceeded the Zacks EPS Consensus for a exceptional 22 consecutive quarters, posting a mean earnings shock of seven.79% in its final 4 quarterly studies.
Rounding out its fiscal 2026, Lululemon’s full-year EPS is anticipated to be down 11% to $13.04, even with annual gross sales thought to have elevated over 4% to $11.08 billion.
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Steering Expectations
After all, the power to supply favorable steerage will likely be most vital to LULU’s rebound prospects. Lululemon usually offers quarterly and full-year steerage for each income and EPS.
Protecting this in thoughts, Wall Road expects Lululemon’s Q1 gross sales to be up 5% yr over yr to $2.49 billion, with complete gross sales for FY27 anticipated to be up 5% as nicely to $11.62 billion. EPS for Q1 is anticipated at $2.31, with full-year FY27 EPS projected at $12.77, declines of roughly 11% and a pair of%, respectively.
LULU’s Complexing Valuation & Capital Effectivity
Buying and selling at its least expensive P/E valuation in a decade at 12X ahead earnings, LULU trades intriguingly under its Zacks Textile-Attire Trade common of 18X and affords a fair sharper low cost to the benchmark S&P 500.
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LULU can also be on the usually most well-liked degree of lower than 2X ahead gross sales, and stands out by way of liquidity metrics like money circulation per share (CFPS).
Though Lululemon has an outstanding CFPS of 18X in comparison with the business common of round 2X, it is noteworthy that the corporate’s free money circulation (FCF) conversion fee has turned unfavorable (-3.8%). Whereas this may very well be non permanent, the customarily most well-liked FCF conversion fee is round 75-80% or greater, with Lululemon’s usually at 65-70%.
In different phrases, the excessive CFPS reveals that Lululemon’s enterprise generates vital money, but the deteriorating FCF conversion is an indication that the corporate has change into much less environment friendly at turning this into true free money flows as a consequence of greater working capital wants and elevated CapEx.
Picture Supply: Zacks Funding AnalysisAlternatively, Lululemon’s return on invested capital (ROIC) has remained above the admirable degree of 20% or greater and reveals effectivity in utilizing its capital investments to generate earnings. This is among the clearest indicators of long-term shareholder worth, nevertheless it’s value noting that Lululemon’s ROIC has fallen sharply as nicely.
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Abstract & Ultimate Ideas
Lululemon inventory is actually drawing consideration as a possible rebound prospect, contemplating LULU is at traditionally low cost ranges by way of P/E and nonetheless has a favorably excessive ROIC. For now, LULU lands a Zacks Rank #3 (Maintain) as delivering sturdy This autumn outcomes and favorable steerage will likely be essential to extra upside.
Whereas there nonetheless seems to be long-term worth, extra strategic clarification will likely be wanted surrounding Lululemon’s management transition and progress on tariffs, together with the restructuring of its provide chain and reducing inside prices.
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lululemon athletica inc. (LULU) : Free Inventory Evaluation Report
This text initially revealed on Zacks Funding Analysis (zacks.com).
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.
