Lululemon Earnings Preview: Will the Retailer Impress the Market?

Investors are wondering if strong holiday sales will help the stock overcome recent weakness

• Lululemon is scheduled to announce fourth quarter results on Thursday.
• Analysts expect Lulu to post earnings per share (EPS) of $5.85 on $3.58 billion of revenue.
• The company’s shares traded with an implied volatility rank (IVR) of 74.5 going into its Q4 earnings report.

Lululemon Athletica (LULU) is set to report earnings after the market closes on Thursday. The high-end athletic apparel brand raised its outlook back in December, which led to a one-day gain of nearly 16% for its stock. However, prices quickly slid back below the pre-announcement trading price over the past several months as the threat of tariffs caused a market-wide sell-off.

What do traders expect?

Analysts anticipate Lululemon will post earnings per share (EPS) of $5.85 on revenue of $3.58 billion, according to TradingView. That would compare to EPS of $5.28 on $3.21 billion in revenue a year ago, and an increase from an EPS of $2.87 on $2.4 billion last quarter.

Lulu’s gross margin is expected to increase by 0.31% from a year ago, according to FactSet. Same-store sales are expected to rise over 5% from the previousquarter, but its full-year guidance will be key for the stock price’s direction post earnings.

The fourth quarter is typically Lulu’s strongest because of holiday spending. In January, chief financial officer (CFO) Meghan Frank said, “During the holiday season, our guests responded well to our product offering, enabling us to increase our fourth quarter guidance. As we close out our 2024 fiscal year, I want to thank our teams around the world for their hard work and ongoing commitment to supporting our guests and communities.”

That said, second only to forward guidance, this quarter will mark a pivotal moment for the stock price moving forward. A miss on the quarterly expectations would likely see investors punish the stock even if they provide strong guidance, especially given the broader concern revolving around the economic backdrop.

Trading Lulu earnings

Lulu traded today with an implied volatility rank (IVR) of 74.5, meaning volatility is elevated compared with the past 12 months of trading. The volatility in the stock can be attributed mostly to a market-wide sell-off that has plagued equity markets since February. Lulu is on track to record a second monthly loss in March, with prices down nearly 20% since January.

Technically, the stock is in a weak position after prices dropped below its early December level when they gapped higher following the updated guidance for the current quarter. However, a revival in market sentiment since last week has trimmed some of the recent losses. Lulu is trading nearly 10% higher from its March swing low of 304.77 from March 13.

Despite the recent gains, the inability to retake the pre-gap level from December is discouraging for bulls. An impressive earnings report could help the stock to reclaim that level near 350, which could encourage a sustained rally, especially if broader sentiment continues to heal. However, a disappointment could see the stock head back to its recent lows and threaten more losses.

Given the elevated volatility, traders looking to short the stock may want to sell a call spread if they expect Lulu to fall or give a neutral reaction. Conversely, traders with brighter expectations would likely benefit from selling a put spread against the earnings report. The options market expects a +/- 31.11 point move by March 28, or +/- 9.3% of today’s stock price.

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. #@fxwestwater

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