Categories Analysis, Retail

Lululemon Athletica (LULU) retreats on growth concerns

Lululemon Athletica Inc. (NASDAQ: LULU) stock retreated on Monday after ending higher on Friday. The Covid-19 or coronavirus outbreak continues to hurt the company as global store operations were closed, yoga classes and store-based events were canceled. The investors remained concerned about the company’s future growth prospects.

The company, which is a designer and retailer of athletic apparel and accessories, is set to release its fourth-quarter 2019 earnings results next week. The market analysts remained positive about the company’s performance for the fourth quarter but turned cautious for the next quarter.

shoe store
Image for representation. Courtesy: Edgar Chaparro on Unsplash

The top line will be driven by company-operated store revenue, including new stores and comparable stores sales, direct-to-consumer revenue and revenue from other retail locations. The company is likely to experience higher store traffic, website traffic, and sales to wholesale accounts for the fourth quarter.

The retail apparel industry remained pressurized by the general seasonal trends. The retailers temporarily close their doors in order to prevent the spread of the coronavirus and the employees are being compensated for the lost shifts. This is likely to hurt the retail players in the industry.

The retail industry has been hurt by a lack of confidence in near-term consumer spending and a pessimistic view of the economy for the balance of the year. However, the e-commerce business continues to gather momentum at times of distress due to the virus spread.

The investors remained concerned about the impact of slowing the virus spread, which could put a heavy damper on retail foot traffic for Lululemon. The store traffic continues to get worse considerably due to increased news coverage of the virus spread in the last few days.

Read: Adidas Q4 earnings snapshot

For the third quarter, Lululemon reported a 33% jump in earnings helped by higher revenue as well as double-digital growth in comparable sales. For the fourth quarter, the company expects revenue of $1.315-1.33 billion and earnings of $2.10-2.13 per share. The comparable sales growth is anticipated to be in the low double-digits on a constant dollar basis.

The stock opened lower and is trading in the red territory in the mid-afternoon on Monday. The shares have fallen over 31% in the past three months and over 39% in the past month. The stock is near the fair value with a 7% estimated return. When considering the performance outlook, the stock is likely to be in the negative territory for the near-term and long-term.

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