Lululemon Athletica (NASDAQ: LULU) closed Thursday’s session up 1.17% at $118.79, bucking a broader market selloff that saw major indexes finish in the red.
The S&P 500 declined 0.51% on the day, while the Dow Jones Industrial Average slipped 0.20% and the tech-heavy Nasdaq fell 1.47%.
In the days leading into Thursday’s session, LULU shares had gained 5.06%, outpacing the Consumer Discretionary sector’s loss of 0.58% and the S&P 500’s modest gain of 0.53%.
Despite the recent price strength, Wall Street is bracing for a difficult earnings report from the athletic apparel maker in its upcoming release.
Analysts forecast Lululemon will report earnings per share of $1.79, representing a 42.26% decline compared to the same quarter one year ago.
Revenue expectations are equally subdued, with the consensus estimate projecting $2.47 billion for the quarter, a 2.26% drop from the equivalent period last year.
Looking at the full fiscal year, the Zacks Consensus Estimate projects earnings of $11.08 per share and total revenue of $11.08 billion, reflecting year-over-year changes of -16.44% and -0.22%, respectively.
Analyst estimate revisions have trended negative, with the Zacks Consensus EPS estimate moving 0.54% lower over the past 30 days, contributing to the stock’s current Zacks Rank of #5, designated as a Strong Sell.
On valuation, Lululemon trades at a Forward P/E ratio of 10.6, a notable discount to the industry average of 16, which may suggest the market is pricing in continued earnings weakness.
The stock’s PEG ratio stands at 3.8, above the Textile-Apparel industry average of 2.24, indicating that Lululemon’s expected earnings growth does not fully justify its current valuation relative to peers.
The Textile-Apparel industry, which sits within the Consumer Discretionary sector, currently holds a Zacks Industry Rank of 189, placing it in the bottom 24% of all tracked industries.
Research from Zacks shows that the top 50% of ranked industries outperform the bottom half by a factor of 2 to 1, adding further caution to the near-term outlook for the apparel sector broadly.
Investors will be watching closely as Lululemon’s upcoming earnings release could serve as a significant catalyst for the stock in either direction, given the sharp forecast for year-over-year EPS deterioration.
