A sharp rally in shares of Lululemon Athletica (NASDAQ: LULU) has captured investor attention, even as the underlying earnings picture grows increasingly difficult to ignore.
The athletic apparel company’s stock has climbed 15.8% over the past month, easily outpacing both the broader market and its sector peers during that stretch.
The Zacks S&P 500 composite fell 2.3% over the same period, while the Zacks Textile-Apparel industry, where Lululemon is categorized, posted a gain of 15.4%.
Yet the momentum in the share price sits in stark contrast to what analysts are projecting for the company’s bottom line in the quarters ahead.
For the current quarter, the consensus earnings estimate stands at $0.97 per share, which would represent a year-over-year decline of 62.6%, a figure that has remained unchanged over the past 30 days.
The full fiscal year tells a similarly sobering story, with the consensus EPS estimate of $9.55 implying a 28% drop compared to the prior year.
Looking further out, the next fiscal year consensus estimate of $8.62 per share points to an additional contraction of 9.7%, suggesting analyst expectations for a meaningful earnings recovery remain limited.
On the revenue side, the current quarter consensus estimate of $2.31 billion reflects a projected year-over-year decline of 10%, while the full fiscal year estimate of $10.5 billion implies a 5.2% drop.
The only near-term bright spot in the revenue outlook is the next fiscal year, where the $10.58 billion consensus estimate suggests a modest 0.8% increase from the current year’s projected figure.
Lululemon’s most recently reported quarter offered a mixed read, with revenues of $2.42 billion coming in 2.07% below the Zacks Consensus Estimate of $2.47 billion, and representing a 4.3% decline from a year earlier.
Earnings per share of $2.06 for that quarter compared unfavorably to $3.10 in the year-ago period, though the result still delivered an EPS surprise of positive 15.08%.
The company has beaten consensus EPS estimates in each of the last four quarters and topped revenue expectations in three of those four periods, a track record that underscores the complexity of evaluating its near-term investment case.
On valuation, Lululemon earns a B under the Zacks Value Style Score system, indicating the stock is currently trading at a discount relative to its peers in the sector.
Despite that relatively attractive valuation grade, Zacks assigns LULU a Rank of 5, its Strong Sell designation, reflecting the weight of deteriorating earnings estimate trends on the stock’s near-term price outlook.
The tension between a discounted valuation, a strong recent price run, and a forecasted multi-year earnings contraction makes Lululemon one of the more contested names in the apparel space heading into the next reporting cycle.
