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

Core Insights - lululemon athletica inc. is expected to report growth in both sales and earnings for the fourth quarter of fiscal 2024, with sales estimated at $3.6 billion, reflecting an 11.7% increase year-over-year [1] - The consensus estimate for earnings per share is $5.85, indicating a 10.6% growth from the previous year [2] Financial Performance - The company has shown consistent earnings outcomes, with a trailing four-quarter earnings surprise of 6.7% on average [3] - lululemon has an Earnings ESP of +2.00% and a Zacks Rank of 3, indicating a stable outlook for earnings [4] Business Momentum - Continued business momentum is anticipated in Q4, driven by positive consumer response, increased in-store traffic, and strong online performance [5] - The company raised its revenue guidance for Q4 to $3.56-$3.58 billion, up from the previous forecast of $3.48-$3.51 billion, indicating a year-over-year growth of 11-12% [7] Margin Expectations - Management expects earnings per share to be between $5.81 and $5.85, with a projected increase of 30 basis points in gross margin compared to Q4 of fiscal 2023 [8] - The adjusted gross margin is predicted to expand to 59.7%, with a 10-basis point increase in the adjusted operating margin to 23.3% [9] International Growth - lululemon is poised to benefit from strong business momentum in international markets, particularly in Mainland China, with international revenues expected to increase by 35.9% year-over-year for fiscal 2024 [10][11] Challenges - The company faces challenges from inflation and higher interest rates, which have led to soft discretionary spending, particularly affecting the women's category in the Americas [12] - A slowdown in the women's business is attributed to fewer updates in core and seasonal styles, negatively impacting conversion rates [13][14] Stock Performance - lululemon's shares have declined by 16.3% over the past three months, underperforming the industry and broader market indices [15] - The stock currently trades at a forward P/E multiple of 20.64X, which is above the industry average of 11.66X, indicating a premium valuation [19] Long-term Strategy - The company is focused on its Power of Three x2 growth strategy, aiming to double net revenues to $12.5 billion by 2026, with significant emphasis on international market expansion and growth in the men's category [22][23] - lululemon's long-term investment potential remains strong due to its robust fundamentals and global presence [24]