Trends to Watch Pre-Q3 Earnings: Buy lululemon Stock Now or Wait?

Core Viewpoint - lululemon athletica inc. is expected to report growth in both sales and earnings for the third quarter of fiscal 2024, with sales estimated at $2.4 billion, reflecting a 6.8% increase year-over-year [1][3]. Financial Performance - The consensus estimate for earnings per share is $2.69, indicating a 6.3% rise from the previous year [3]. - The company has a trailing four-quarter earnings surprise average of 7.9%, suggesting a strong performance trend [4]. Growth Drivers - Continued business momentum is anticipated across various channels, regions, and product categories, driven by positive consumer response, increased in-store traffic, and robust online performance [6]. - International markets, particularly Mainland China, are expected to contribute significantly to revenue growth, with forecasts of $548.5 million in international revenues, accounting for 23.3% of total revenues [8]. Strategic Initiatives - lululemon's Power of Three x2 growth plan focuses on product innovation, enhancing guest experience, and market expansion, which are crucial for brand awareness and customer loyalty [9]. - The men's category is projected to see a revenue increase of 10.8% year-over-year, contributing 23.7% to total revenues [10]. Revenue Projections - Management anticipates net revenues between $2.34 billion and $2.365 billion for the fiscal third quarter, indicating a 6-7% year-over-year growth [11]. - Company-operated stores and direct-to-consumer channels are expected to grow by 8.1% and 5.3% year-over-year, respectively [11]. Cost Management - SG&A expenses as a percentage of sales are expected to decline by 40-50 basis points year-over-year, with an estimated rate of 37.7% for the fiscal third quarter [12]. Challenges - The company faces challenges from inflation affecting discretionary spending, particularly in the women's category in the Americas [13]. - A slowdown in the women's category is attributed to fewer updates in core and seasonal styles, impacting conversion rates [14]. Inventory Issues - Inventory shortages in key product lines have been noted, with replenishment expected in the second half of fiscal 2024 [16]. Margin Outlook - A gross margin contraction of 50-60 basis points year-over-year is projected, with an estimated adjusted gross margin of 57.6% for the fiscal third quarter [18]. Stock Performance - lululemon's shares have increased by 23.1% over the past three months, outperforming the industry and major indices [19][21]. - The stock currently trades at a forward P/E multiple of 21.42X, above the industry average of 13.77X, indicating strong investor expectations [22][24]. Long-term Strategy - The company aims to double net revenues to $12.5 billion by 2026, focusing on international market expansion and growth in the men's category [25][26]. - lululemon is optimistic about its potential in international markets, particularly China, with plans to quadruple international revenues over time [26]. Conclusion - Regardless of the immediate market reaction to the upcoming earnings report, lululemon is viewed as a solid long-term investment due to its strong fundamentals and global growth potential [27].