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On Friday, Needham analysts revised their outlook on Lululemon Athletica Inc. (NASDAQ: NASDAQ:LULU), lowering the 12-month price target from $430.00 to $366.00, while maintaining a Buy rating on the shares. The adjustment followed the company’s latest earnings report and forward guidance, which, despite Q4 earnings surpassing expectations, disappointed investors with its future outlook. According to InvestingPro data, the company maintains a "GREAT" financial health score, with strong fundamentals and impressive gross margins of nearly 59%.
Lululemon’s shares experienced a roughly 10% decline in after-market trading on Thursday, as the company’s guidance fell short of market expectations. The analysts at Needham pointed out several conservative aspects in the company’s forecast, including a 100 basis point drop in EBIT margin and no planned share buybacks. Despite these factors, the analysts believe Lululemon possesses a compelling "self-help" narrative within the U.S. market. With a P/E ratio of 24.6 and revenue growth of 10.8% over the last twelve months, InvestingPro analysis suggests the stock is currently trading below its Fair Value.
The company’s strong financial position, highlighted by nearly $2 billion in cash reserves and an anticipated free cash flow (FCF) of $1.6 billion by fiscal year 2025, was noted as a positive aspect. However, the ability of Lululemon to accelerate its revenue growth is seen as contingent on the broader economic environment.
In light of the new guidance, Needham has also revised its earnings per share (EPS) estimates for fiscal years 2025 and 2026 to $15.15 and $16.62, respectively, down from previous estimates of $15.49 and $17.20. The updated price target of $366 reflects these adjustments and the current market conditions impacting Lululemon’s business prospects.
In other recent news, Lululemon Athletica Inc. reported fourth-quarter earnings that exceeded expectations, with an earnings per share (EPS) of $6.14, surpassing the consensus estimate of $5.88. The company also reported revenue growth of 13% year-over-year, reaching $3.61 billion, which was above the anticipated $3.57 billion. Despite these strong financial results, several analyst firms have adjusted their price targets for Lululemon. JPMorgan reduced its target to $391 while maintaining an Overweight rating, citing the earnings report as a factor. Stifel also cut its price target to $424, maintaining a Buy rating, and noted that new product launches like Glow Up and Daydrift are gaining traction. Evercore ISI lowered its price target to $440, keeping an Outperform rating, and highlighted the company’s strong gross margins and product innovation. Looking ahead, Lululemon has set its fiscal year 2025 revenue guidance at $11.15 billion to $11.30 billion, reflecting a 5-7% increase, with EPS expected to be between $14.95 and $15.15, slightly below some analysts’ expectations. The company plans to open 40 to 45 new stores in 2025, focusing on international markets, particularly China, as part of its growth strategy.
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