Lululemon LULU designs, manufactures, and distributes athletic apparel and accessories for women, men, and female youth.
The stock is currently a Zacks Rank #5 (Strong Sell), with its near-term earnings outlook remaining cloudy across the board. It also resides in the bottom 26% of all Zacks industries, reflecting broader pressure across peers as well.
Image Source: Zacks Investment Research
Lululemon's Growth Cools
LULU shares have faced pressure amid weakening trends in its consumer base, particularly so in North America, its biggest market. Quarterly results have put the spotlight on pressure in the region, with revenues in the broader Americas region declining 3% YoY and comparable sales declining 5% YoY.
As many likely remember, the company was once a high-growth company amid its initial ascent before things cooled off in a big way, with the weak price action reflective of the growth cooldown. Please note that the chart below tracks the YoY % change in sales, not actual sales numbers.
Image Source: Zacks Investment Research
In addition, the overall profitability picture for LULU, which has historically been strong relative to peers in its industry, has been impacted negatively over recent periods, with its overall gross margin declining 410 basis points YoY to 54.2% in its latest period.
The chart below tracks the company’s gross margin on a trailing twelve-month basis.
Image Source: Zacks Investment Research
Bottom Line
Negative earnings estimate revisions stemming from a growth cooldown and an impacted profitability picture paint a challenging picture for the company’s shares in the near term.
Lululemon LULU is a Zacks Rank #5 (Strong Sell), indicating that analysts have taken a bearish stance on the company’s earnings outlook.
For those seeking strong stocks, the best idea would be to focus on stocks with a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy) – these stocks sport a notably stronger earnings outlook paired with the potential to deliver explosive gains in the near term.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
