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On Friday, JPMorgan analysts adjusted their outlook on Lululemon Athletica Inc. (NASDAQ:LULU), reducing the price target from $437.00 to $391.00 while sustaining an Overweight rating on the stock. According to InvestingPro data, LULU currently trades at $341.53, suggesting potential upside based on the new target. The revision followed the company’s fourth-quarter earnings report, which revealed a profit per share of $6.14, surpassing the average analyst estimate of $5.88. With an overall Financial Health Score of "GREAT" and impressive profitability metrics, LULU continues to demonstrate strong fundamentals. The reported revenue growth of 13% year-over-year also exceeded both the consensus forecast of 11.9% and management’s own raised guidance of 11-12%.
Lululemon’s gross margin expanded by 100 basis points year-over-year to 60.4%, outperforming the Street’s expectation of 59.7%. However, selling, general, and administrative expenses (SG&A) deleveraged by 60 basis points, landing at 31.5%, which was still below the anticipated 31.7%. This resulted in earnings before interest and taxes (EBIT) margins reaching 28.9%, higher than the Street’s projection of 28.0%.
The company experienced acceleration in revenue growth across all regions on a comparable and constant-currency basis when excluding the impact of an extra week in the fiscal calendar. In the United States, revenue growth improved to 1% year-over-year from a flat third quarter. Canada saw an increase to 11% from 9%, China jumped to 39% from 36%, and the Rest of World region climbed to 26% from 23%.
Looking ahead, Lululemon’s management has set a fiscal year 2025 earnings per share (EPS) guidance range of $14.95 to $15.15, which is slightly below the Street’s expectation of $15.31. Trading at a P/E ratio of 24.63, InvestingPro analysis indicates the stock is trading at a low P/E relative to near-term earnings growth. This forecast is based on reported revenue growth of 5-7% year-over-year, which includes a 100 basis point foreign exchange headwind and a 100-200 basis point impact from lapping the 53rd week, equating to an underlying revenue growth of 8-9%. Discover 8 more exclusive InvestingPro Tips and comprehensive valuation metrics with a subscription. The company also anticipates fiscal year 2025 operating margins to decrease by approximately 100 basis points year-over-year to 22.7%, compared to the Street’s forecast of 22.9%. Chief Financial Officer Frank noted that foreign exchange rates and tariffs account for just over half of the projected decline in margin rate.
In other recent news, Lululemon Athletica Inc. reported strong financial results for the fourth quarter of 2024, exceeding Wall Street expectations with an earnings per share (EPS) of $6.14 and revenue of $3.61 billion. Despite these positive figures, the company’s stock experienced a decline due to broader market concerns and guidance on margins. Lululemon’s projections for fiscal year 2025 indicate revenue growth between $11.15 billion and $11.30 billion, with an adjusted EPS forecast ranging from $14.95 to $15.15. Stifel analysts have revised their price target for Lululemon to $424, maintaining a Buy rating, while Evercore ISI has adjusted its target to $440, keeping an Outperform rating. Both firms acknowledge the company’s recent financial performance, which surpassed expectations, and highlight the cautious consumer environment in the U.S. as a factor impacting traffic. Lululemon’s innovative product launches, such as Glow Up and Daydrift, have been well-received, contributing to positive consumer response. Analysts from Evercore ISI remain optimistic about Lululemon’s strategic positioning and potential for growth, despite challenges in the retail environment.
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