Lululemon (NASDAQ:LULU) pulled off a hat trick with Q1 results giving investors a beat on profit, revenue, and a boost to FY25 EPS guidance, a feat that demonstrated the brand’s resilience amid changing customer tastes and shifts in discretionary spending. Even with competitors gaining ground, Lululemon (LULU) seemingly broke through the “wall of worry” and delivered a solid quarter.
But is this the turnaround Wall Street was looking for?
Analysts remain split on whether or not this momentum can be maintained as tastes continue to evolve and competitors gain traction. At the far end of the bearish spectrum is Jefferies’ Randal Konik who thinks Wednesday’s results were a one-off and investors should be selling the stock on strength.
“The Lululemon brand and its fundamentals have peaked, and we anticipate relentless competition ahead,” Konik says, reaffirming his Underperform rating. Konik thinks the accessories business is about to go negative, and the Belt Bag performance was little more than a fad.
At the other end is BTIG’s Janine Stichter who remains bullish on Lululemon (LULU) after previously saying the “competitive narrative appears overstated.” While Q1 won’t be enough to settle the bull/bear debate, Stichter remains confident that previous execution missteps have been identified (color selection, limited small sizes) allowing the company to be “course-corrected” and reaccelerate the trend in the second half of this year.
These “missteps” were acknowledged by the company as well on its earnings call, especially in the women’s business, and will likely be corrected.
“We thought LULU came armed with much richer detail on a diagnosis that the color/size issues were the main driver of some revenue softness early in the year, but that the issue is correctable,” Evercore ISI’s retail team said, echoed by SA analyst Abdullah Al-Rezwan who said, “The pain in the women’s segment seems mostly self-inflicted to me and something that can be corrected over the course of the year,”
“If LULU manages to address the concerns for the women’s segment in the U.S., I’m still optimistic that they may be able to do better than their high-end of revenue guidance for 2024,” Al-Rezwan added.
Sitting on the fence is Morgan Stanley’s Alex Straton with a cautiously optimistic outlook for the company while still acknowledging that Q1 results weren’t “enough to debunk the bear thesis.” Straton is holding out for Q3 results before making a call on an inflection point, leaving Lululemon’s (LULU) stock range-bound on the back of Wednesday’s results until then.
