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Lululemon Shares Slump Over 4% After It Flags Demand Risks

Lululemon Athletica, a healthy lifestyle-inspired athletic apparel company, reported better-than-expected earnings in the fourth quarter; however, warned that further resurgences in COVID-19 would result in lower consumer demand, and cause disruption in the supply chain, sending its shares down over 4%.

The Vancouver-based retailer said its net revenue rose 24% to $1.73 billion in the fourth quarter, higher than Wall Street’s consensus estimates of $1.66 billion, largely driven by a surge in online sales, which nearly doubled on a comparable basis. Adjusted diluted earnings per share for the fourth quarter of 2020 were $2.58 per share, beating analysts’ expectations of $2.49 per share.

Lululemon expected net revenue to be in the range of $1.100 billion to $1.130 billion for the first quarter of fiscal 2021. Diluted earnings per share are expected to be in the range of $0.81 to $0.85 for the quarter and adjusted earnings per share are expected to be in the range of $0.86 to $0.90.

The apparel retailer forecast net revenue to be in the range of $5.550 billion to $5.650 billion for fiscal 2021. Diluted earnings per share are expected to be in the range of $6.10 to $6.25 for the year and adjusted earnings per share are expected to be in the range of $6.30 to $6.45.

The company also warned that the further resurgences in COVID-19, including from variants could cause additional restrictions, including temporarily closing all or some of our retail locations again, result in lower consumer demand, and cause disruption in our supply chain.

Lululemon Athletica shares, which surged more than 50% in 2020, slumped over 4% to $304.25 on Wednesday.

Analyst Comments

LULU delivered another quarter of revenue & EPS results above Street expectations & in-line with pre-COVID-19 levels. While ’21 EPS guidance came in light vs. the Street, we view it as conservative & anticipate Street ’21 EPS remains largely unchanged. Leave 4Q positive; estimates under review,” noted Kimberly C Greenberger, equity analyst at Morgan Stanley.

“Expanded eComm capabilities, improved supply chain, better inventory management, and product initiatives led to enviable ’18-’19 performance and a robust return to pre-COVID-19 levels in 3Q20, making +mid-high-teens comps seem normal. Still, the current valuation appears extreme, so we stay EW. Compelling LT and post-COVID-19 growth opportunity driven by three factors: international expansion (maybe less evident in ‘20e given COVID-19 outbreak), digital growth, and product innovation. LULU dominates the NA athletic yoga apparel category due to its unique brand positioning and fashionable products, and its athleisure focus is further advantaged in a COVID-19 affected world.”

Lululemon Athletica Stock Price Forecast

Thirteen analysts who offered stock ratings for Lululemon Athletica in the last three months forecast the average price in 12 months of $407.23 with a high forecast of $465.00 and a low forecast of $364.00.

The average price target represents a 33.86% increase from the last price of $304.23. Of those 13 analysts, 11 rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $279 with a high of $493 under a bull scenario and $127 under the worst-case scenario. The firm gave an “Equal-weight” rating on the athletic apparel company’s stock.

Several other analysts have also updated their stock outlook. UBS raised the stock price forecast to $375 from $364. Bernstein lowered the price target to $351 from $379. BofA Global Research lowered price objective to $410 from $425. MKM Partners cut the price target to $388 from $446. Deutsche Bank slashed the target price to $390 from $396.

Moreover, Citigroup cut the price target to $350 from $385. BTIG lowered the price target to $434 from $453. JPMorgan cut the target price to $418 from $442. B. Riley slashed the target price to $374 from $409. RBC lowered the target price to $380 from $435.

“Although we expect to lift our $155 per share fair value estimate on Lululemon by a mid-single-digit percentage, we continue to view its shares as overvalued at roughly 50 times expected 2021 EPS,” said David Swartz, equity analyst at Morningstar.

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