Lululemon Athletica remains one of the few fundamentally strong companies, delivering substantial growth over the previous quarters. Nevertheless, the stock remains below the bearish trendline, limiting its upside potential.
On $1.87 billion in sales, Lululemon announced fiscal Q2 GAAP profits per share (EPS) of $2.26. The profits result exceeded expectations by 21%, or 39 cents. The revenue exceeded consensus by 5.6% and was above expectations by $100 million.
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The firm now has 600 locations globally after adding 21 net new stores during the quarter. Additionally, online sales increased 30% YoY and now make up roughly half of the overall income.
“Overall momentum in our international business remains strong, with revenue increasing 35% versus last year and 40% on a three-year CAGR basis,” said Lululemon CEO Calvin McDonald.
After a sluggish start to the year in China due to closures connected to COVID-19 and capacity issues, the country has recently experienced a recovery. The company’s revenue increased by over 30% from the previous year and by almost 70% on a three-year CAGR basis. In China, LULU is still in its early stages of development.
Inflation is not a problem for LULU
A fxstreet.com analysis showed that the firm’s operating margin of 21.5% was 30 basis points higher year over year, while Lululemon’s gross profit margin of 56.5% was 40 basis points higher than the estimate. Investors could see from these data indicators that Lululemon is not only addressing inflation head-on but also outperforming it, something that very few of its rival apparel companies have been able to do this year.
Same-store sales increased by 23% YoY, which may be related to decreased consumer concerns about inflation but also shows Lululemon’s power over customers.
The management improved the outlook for LULU shares by providing positive Q3 forecasts. A tight range of $1.78 billion to $1.805 billion was provided for the revenue forecast, while EPS between $1.90 and $1.95 was also higher than anticipated. This would result in revenue growth of 23% YoY and an EPS increase of 19% YoY.
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Once the resistance level near 335 USD (the bearish trend line converged with the 200-day average) is broken to the upside, we might witness a massive rally toward 400 USD.
Alternatively, the failure to stay above 285 USD might cause another leg lower, targeting 260 USD.