Lululemon: Shares Remain Overvalued Despite Small Guidance Increase

As usual, narrow-moat Lululemon updated its fourth-quarter outlook ahead of planned investor meetings in January. As has typically been the case over the past few years, its outlook update was upward, as it lifted its ranges for sales guidance to $3.17 billion-$3.19 billion from $3.135 billion-$3.17 billion, gross margin to 58.6%-58.7% from 58.3%-58.6%, and EPS to $4.96-$5.00 from $4.85-$4.93. We view these revisions as minor and believe that they were widely anticipated by investors given the firm’s usual practice of providing a conservative holiday season outlook. Indeed, Lululemon’s shares dipped about 1% in the immediate aftermath of the update, probably because investors had hoped for a greater revision, especially as most estimates (including ours) were already at the high end or above the prior guidance ranges.