Lululemon Earnings: Worrisome US Trends Overshadow Successful 2024 Close; Shares Fairly Valued

Even though we had lifted our estimates after its holiday sales update (see our Jan. 13 note), Lululemon’s fourth-quarter results eclipsed our forecast. However, shares fell about 10% in March 27 postmarket trading on weakening US sales trends that led to a disappointing 2025 outlook. Specifically, the firm guided to total sales growth and earnings per share of 5%-7% and $14.95-$15.15, respectively, versus our estimates of 8.6% and $15.52. Although we may lower our near-term forecast, Lululemon has a history of providing conservative guidance, and the effect on our $315 per share fair value estimate is likely to be immaterial. We think Lululemon’s brand strength, the source of our narrow moat rating, holds despite recent challenges related to rising competition and its product management. Shares trade close to our valuation but could become attractive if weakness persists.