Lululemon Athletica Inc (NASDAQ: LULU) is not very likely to command a higher multiple until it manages to lift its US sales, as per Anna Andreeva of Piper Sandler.
The athletic apparel retailer topped estimates but its domestic business remained a laggard in its third financial quarter.
“Historically, the number one driver of LULU’s multiple is US comp. The company reported flat US sales. That’s pretty disappointing,” Andreeva told CNBC in an interview today.
Nonetheless, Lululemon shares are up some 10% following the Q3 earnings release last night.
Lululemon’s operating margin could take a hit
An uptick in sales at Lululemon on Black Friday failed to uplift the Piper Sandler analyst as well.
That’s because the shopping day was strong for the industry across the board – the strength was not unique to Lululemon at all.
Another green area in LULU’s earnings release last night was its operating margin which now sits at a peak of about 22%.
But Anna Andreeva took even that with a pinch of salt as the company is investing rather aggressively in marketing, which could weigh on its margins in 2025.
And it’s not like Lululemon shares pay a dividend in writing to appear any more attractive for the income investors either.
LULU is not inexpensive to own at current levels
Lululemon stock is currently going for about 26 times its forward earnings.
While that’s down significantly from over 30 times at the start of this year, the Piper Sandler analyst is focused more on how much the stock has gained in recent months.
LULU traded at under 20 times in August – and that makes it expensive at writing until it turns green on US comps, according to Anna Andreeva.
Her “neutral” rating on Lululemon shares is coupled with a $340 price target that suggests they could lose their entire post-earnings gain in the coming weeks.
Lululemon faces intense competition
On “Worldwide Exchange”, Anna Andreeva of Piper Sandler agreed that Lululemon is a fantastic brand.
Still, rising competition from the likes of Alo and Vuori could increase its cost of incremental customer acquisition in the coming year, she added.
For the holiday quarter, Lululemon guided for $3.495 billion in revenue – a tad below $3.50 billion that analysts had forecast. Its outlook for per-share earnings at $5.60, however, marginally topped experts’ estimates of $5.59 billion.
“While we feel good about the holiday season, we still have large volume weeks in front of us. Given the shorter holiday season, we continue to be thoughtful in our planning for quarter four overall,” Calvin McDonald – the chief executive of Lululemon said in a press release last night.
Lululemon’s earnings arrived more than a month after it signed a significant deal with the NHL.
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