Lululemon Athletica (LULU) shares are a potential chance for investors to buy into a “high-quality name,” even though sequential moderating revenue growth in the US prompted the company to issue a downbeat fiscal first-quarter outlook, according to Wedbush Securities.
The athletic apparel maker said late Thursday it expects per-share earnings to be in a range of $2.35 to $2.40 for the current three-month period and sales to come in between $2.18 billion and $2.2 billion. The consensus on Capital IQ was for EPS of $2.60 and revenue of $2.26 billion before the guidance was given, and later reduced to $2.39 and $2.2 billion, respectively.
The company flagged a quarter-to-date slowdown in North America, where revenue increased 9% for the three months through Jan. 28 versus the previous quarter’s gain of 12%, according to Wedbush. Senior management highlighted that US traffic remains positive, but conversion has declined due to assortment-based issues with sizing and colors.
The brokerage has an outperform rating on Lululemon’s stock and lowered its 12-month price target to $492 from $548.
Shares of the company slipped 13% in recent premarket trading Friday.
“Consistent with what we’ve seen from others in the market, the consumer environment in the US has been somewhat challenging,” Chief Executive Calvin McDonald said during a late Thursday earnings call, according to a Capital IQ transcript. “However, despite the market dynamics, we remain optimistic about our opportunities to grow our business in the US in 2024 and to continue to gain market share.”
Wedbush believes Lululemon remains “highly innovative,” while growth in the “underpenetrated international region is outstanding.” The company has also “usually recovered very quickly” when faced with drawbacks in the past, thus making the “pullbacks look like compelling buying opportunities in hindsight,” analysts Tom Nikic and Matt Quigley wrote in the note.
Additionally, Lululemon highlighted continued momentum from international markets. International revenue jumped 54% in the fourth quarter while comparable sales advanced 43%.
The brokerage now estimates the company to record EPS of $14.20 for fiscal 2024, down from its prior forecast of $14.95. Lululemon expects EPS of $14 to $14.20 for the year, while revenue is pegged at $10.7 billion to $10.8 billion, representing annual growth of 11% to 12%.