Lululemon Earnings: Rare Sign of Weakness Overshadows Solid Results; Shares Expensive

Narrow-moat Lululemon’s fourth-quarter results exceeded our estimates, which had been raised after its January preannouncement. However, the firm acknowledged that sales have slowed in the first quarter in the US and it issued disappointing 2024 sales growth guidance of 11%-12%, shy of historical levels and our 14% estimate. Consequently, Lululemon’s shares fell by about 11% on March 21 postmarket trading. Even so, as the company’s 2024 EPS outlook of $14.00-$14.20 aligns with our $14.12 estimate and as it has a history of conservative guidance, we expect to increase our $278 fair value estimate by a low-single-digit percentage. We rate Lululemon’s shares, which trade at about 30 times forward earnings, as overvalued.