Lululemon Earnings: Strong Momentum Leading Into a Competitive Holiday Period; Shares Overvalued

As has been typical, narrow-moat Lululemon’s third-quarter sales and earnings exceeded its guidance and our expectations. These results bode well for a good finish to the year despite concerns about slowing consumer spending on apparel and a promotional holiday period across the industry. We expect to lift our $267 per share fair value estimate by a mid-single-digit percentage. However, we view Lululemon’s shares, trading at more than 35 times expected 2023 EPS, as overvalued, based on our 10-year discounted cash flow model and the threat of ever-increasing competition in athleisure.