lululemon Q4 Earnings to Reflect Holiday Gains: Buy Now or Wait?

lululemon athletica inc. LULU is likely to witness top and bottom-line growth when it reports fourth-quarter fiscal 2024 results on March 27, after market close. The Zacks Consensus Estimate for fiscal fourth-quarter sales is pegged at $3.6 billion, indicating an 11.7% increase from the year-ago quarter's reported figure.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.The consensus estimate for the company's fiscal fourth-quarter earnings is pegged at $5.85 per share, suggesting 10.6% growth from the year-ago quarter’s actual. Earnings estimates have been unchanged in the past 30 days.The Vancouver-based company has been reporting steady earnings outcomes, as evident from its top and bottom-line surprise trends in the trailing four quarters. LULU has a trailing four-quarter earnings surprise of 6.7%, on average. Given its positive record, the question is, can LULU maintain the momentum?Earnings WhispersOur proven model conclusively predicts an earnings beat for lululemon this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.lululemon has an Earnings ESP of +2.00% and a Zacks Rank of 3. You can see the complete list of today's Zacks #1 Rank stocks here.Key Insights on Trends to Define LULU’s Q4 Resultslululemon is expected to have continued its business momentum in the fourth quarter of fiscal 2024, showcasing growth across various channels, regions and product categories. This growth is likely to have been driven by positive consumer response to its products, increased in-store traffic and a robust online performance.The company recently provided a positive business update, reflecting stronger-than-anticipated demand in the holiday season. Its holiday selling period benefited from favorable customer response to the brand’s product offerings. As a result, the company raised its guidance for fourth-quarter fiscal 2024.LULU expects revenues to increase 11-12% year over year to $3.56-$3.58 billion in the fiscal fourth quarter. The revised guidance marks an increase from the previous forecast of $3.48-$3.51 billion. Adjusting for the additional 53rd week in fiscal 2024, the company expects organic revenue growth of 6-7% for the fiscal fourth quarter.Management expects earnings per share of $5.81-$5.85, up from the previously mentioned $5.56-$5.64. The company anticipates an increase of 30 basis points (bps) in the gross margin from that reported in the fourth quarter of fiscal 2023. This is a notable improvement from its prior guidance, which indicated a 20-30 bps decrease in the gross margin. Furthermore, the company expects a deleverage of 80-90 bps in selling, general and administrative expenses, suggesting an improvement from the earlier stated 90-100 bps increase.Our model predicts year-over-year revenue growth of 11.1% for the fiscal fourth quarter, with an adjusted EPS of $5.81. Our model predicts the adjusted gross margin to expand 30 bps year over year to 59.7% in the fiscal fourth quarter, with a 10-bps expansion in the adjusted operating margin to 23.3%.lululemon athletica inc. Price and EPS Surprise  lululemon athletica inc. price-eps-surprise | lululemon athletica inc. Quotelululemon is also poised to benefit from the strong business momentum in its international markets, including Mainland China and the Rest of the World, as the brand connects well with customers globally. The company has been on a growth trajectory with its Power of Three x2 growth plan, focusing on product innovation, guest experience and market expansion. Initiatives like community-based events and brand campaigns have been crucial for increasing brand awareness, attracting customers and strengthening brand loyalty. These efforts are expected to have aided the company's fiscal third-quarter performance.On the last reported quarter’s earnings call, management expressed confidence in the ongoing strength of its international business, particularly in Mainland China. Our model predicts international revenues to increase 35.9% year over year for fiscal 2024.However, lululemon has been facing challenges from the inflationary environment and higher interest rates, leading to soft discretionary spending, and struggles in the women’s category, collectively affecting the Americas business. This has been a major challenge for luxury retail brands like lululemon, especially in the United States. The struggles in LULU’s Americas segment relate to a revenue slowdown in the United States.The company continues to witness a slowdown in the women's business largely due to a product strategy that featured fewer updates to core and seasonal styles, such as changes in color, print, patterns and silhouettes. This reduction in newness, stemming from earlier product decisions, resulted in fewer fresh options for female customers, negatively impacting conversion rates.While lululemon has been confident in its innovation pipeline and long-term recovery, near-term results are expected to reflect the lack of new products in the women’s category, as outlined in its fiscal fourth-quarter outlook.LULU’s Price Performance & Valuationlululemon’s shares have exhibited a downtrend in the past three months, losing 16.3% compared with the industry’s plunge of 16.8%. The company has underperformed the Zacks Consumer Discretionary sector and the S&P 500’s declines of 5.5% and 6.6%, respectively.lululemon’s 3-Month Performance Image Source: Zacks Investment Research Despite the fall, the lululemon stock has outperformed industry peers G-III Apparel GIII, Guess GES, and V.F. Corp’s VFC dips of 21%, 16.6% and 25.2%, respectively, in the past three months.At its current price of $322.62, the LULU stock trades at a 42.7% premium to its 52-week low of $226.01. Moreover, the stock reflects a significant discount of 23.8% from its 52-week high of $423.32.From the valuation standpoint, the company trades at a forward 12-month P/E multiple of 20.64X, exceeding the industry average of 11.66X.The premium valuation suggests that investors have strong expectations for lululemon’s future performance and growth potential. However, the stock currently seems somewhat overvalued. As a result, investors might be hesitant to buy at these elevated levels and prefer to wait for a more favorable entry point. Image Source: Zacks Investment Research Investment Thesislululemon is navigating several notable challenges. Rising inflation and higher interest rates are dampening consumer spending, particularly on discretionary goods, prompting shoppers to become more selective. These pressures have posed significant hurdles for luxury retail brands, especially in the Americas. Despite this, lululemon is benefiting from its Power of Three X2 growth strategy, which aims to double net revenues to $12.5 billion by 2026, suggesting growth from the $6.25 billion reported in 2021. The strategy also focuses on expanding its presence in underpenetrated international markets and growing its share in the men’s category.lululemon is particularly optimistic about its potential in international markets, notably China, which represents a substantial opportunity. The company plans to quadruple its international revenues over time, with a goal of these markets contributing nearly 50% of total sales. Alongside its physical retail expansion, lululemon is leveraging its digital capabilities to drive sales and deepen customer engagement.ConclusionNo matter how the LULU stock reacts to its fourth-quarter fiscal 2024 earnings, it remains a solid long-term investment due to its robust fundamentals. With strong profitability and a growing global presence, lululemon offers a compelling opportunity for long-term investors. If you already own the LULU stock, hold steady, as the upcoming earnings report is expected to reinforce the company’s strong performance.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report V.F. Corporation (VFC): Free Stock Analysis Report Guess?, Inc. (GES): Free Stock Analysis Report lululemon athletica inc. (LULU): Free Stock Analysis Report G-III Apparel Group, LTD. (GIII): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks