Lululemon (LULU) Gains As Market Dips: What You Should Know

Wall Street seems to have fallen out of love with yoga pants and their well-known maker, Lululemon Athletica .

When the company began in Vancouver in 1998, Lululemon aimed to be the only premium, performance-based yoga brand in the market. In fact, its first retail space was located in a yoga studio.

But, over the years, those form-fitting leggings (called Align and priced between $98 and $118) turned the brand into a status symbol.

Today, leggings are still a fundamental part of Lululemon’s business. The company sold a pair of Aligns every four seconds last year; they’re just one of many leggings styles available.

And while the women’s market in North America is still Lululemon’s bread and butter, the company is expanding successfully into two different markets. First, its move into China has paid off in a big way, with explosive growth.

We’ll have to see if the second move - into men’s fashion - turns out as well.

Let’s look at China first.

LULU in China

As recently as 2018, the yogawear maker had 10 stores in China, and was still trying to figure out how to operate its e-commerce platforms there. This year, it has more than 130 outlets and hit $1 billion in Chinese sales for the first time.

That put China on track to become its second-biggest market after the U.S.

So while other Western brands have faded badly in China in recent years, Lululemon has become a surprise hit. Sales in the first two quarters of this year grew by 40%. And Lululemon is selling more expensive items, at an overall pricing that's 20% higher than in the U.S.

As other Western brands scaled back in China, most of Lululemon's store openings this year actually were in mainland China. By 2026, HSBC estimates that the country will account for 20% of Lululemon’s total sales of nearly $13 billion globally. This would make it more reliant on China than Apple , Nike , or Starbucks currently are.

Lululemon has become the third-largest foreign sports apparel brand in China, Morgan Stanley said last month. And it’s the leader among niche athleisure brands. Its $600 jackets and $150 yoga pants continue flying off shelves, even though there are many cheaper local brands selling copies of the company’s clothes for a third of the price.

A big part of the reason for Lululemon’s success is its strategy of tailoring items for the local Chinese market. Up to 35% of its China sales come from products tailored specifically for that market.

Highlighting Lululemon’s resilience to Chinese consumers’ new frugality, products priced at more than 1,000 yuan ($140) accounted for more than 40% of its Tmall (owned by Alibaba) sales in September, compared with just 10% in the same month three years ago.

Menswear has also become a significant growth driver, appealing to Chinese men who might once have seen Lululemon as mostly for women. Its new ad campaigns now focus on wellbeing for everyone.

Lululemon’s Move Into Menswear

Besides China, Lululemon is moving into menswear globally.

Calvin McDonald, the company’s CEO since 2018, thinks now is the time to increase its male customer base. His goal is to quadruple its men’s business by 2026. This is part of a broader strategy, where Lululemon seeks to “double its overall business to $12.5 billion, including doubling e-commerce sales, and quadrupling international sales, from 2021-2026.”

For 2024, the company expects annual revenues to hit about $10.3 billion, up 8% from 2023. In the second quarter of this year, women’s products made up nearly two-thirds of sales.

However, menswear is growing faster. In the second quarter of 2024, men’s sales grew by 11%, compared to a 6% rise in women’s sales.

In womenswear, Lululemon built its reputation in yoga before expanding into other categories. But in menswear, its offering is already broad — it currently offers outfits for running, golf, tennis, hiking, and yoga, as well as casual wear.

Buy LULU

The moves into China and menswear make sense. Lululemon is approaching a ceiling for womenswear in the U.S.; growth in North America virtually flatlined in the second quarter of this year, sending the stock price down substantially. While the company still has pockets of growth, it won’t be able to manage the same kind of growth in North America it has had in the past.

I see China growing 35% or more annually over the next five years. In the 2023 fiscal year, sales in mainland China grew 67% year-on-year.

The company continues to enjoy balanced revenues, split roughly 50/50 between e-commerce and brick-and-mortar stores, which makes it resilient in any economic environment.

Finally, Lululemon continues to maintain its fortress balance sheet. It ended the 2023 fiscal year with $2.2 billion in cash and equivalents, and no long-term debt outstanding.

The company repurchased 1.5 million shares for $555 million in the 2023 fiscal year and announced that it raised its buyback program again by $1 billion, and now has over $1 billion remaining under its current program.

Add its strong financials to what I believe will be a winning growth strategy, and LULU is a buy under $330.

Meme cryptocurrency Dogecoin is soaring in price and valuation, up more than 80% in the past week and setting new 52-week highs.

With the latest push in valuation, Dogecoin passed the valuation of some well-known global companies.

What Happened: Dogecoin was created in 2013 by Jackson Palmer and Billy Markus, meant as a joke and as a satirical coin to mock Bitcoin .

While Dogecoin trails Bitcoin in value at $47.7 billion to $1.72 trillion based on current market capitalizations, the accomplishments of increasing that much in value are no laughing matter.

With its current market capitalization of $47.7 billion at the time of writing, Dogecoin would rank as the 428th largest company in the world, according to companiesmarketcap.com.

Here is a look at some well-known companies that are worth less than Dogecoin is Monday:

• Occidental Petroleum : $47.6 billion
• Volkwagen : $46.3 billion
• Nasdaq : $45.7 billion
• Keurig Dr Pepper : $44.9 billion
• Ford Motor Company : $44.7 billion
• Heineken : $44.1 billion
• Kroger : $43.2 billion
• Adidas : $42.5 billion
• Honda Motor Company : $42.5 billion
• Delta Air Lines : $40.9 billion
• Kraft Heinz Company : $39.4 billion
• Lululemon Athletica : $39.1 billion
• Yum! Brands : $38.2 billion
• 7-Eleven: $37.3 billion
• Roblox Corporation : $35.7 billion

There you have it, 15 companies you've likely heard of now worth less than Dogecoin. Years ago, it was likely unimaginable that the joke cryptocurrency would become larger than companies like Ford and Adidas, but here we are.

Read Also: Here’s How Much $100 In Dogecoin Today Could Be Worth If DOGE Hits New All-Time Highs

What's Next: The cryptocurrency sector has been enjoying a surge in valuation and interest since the 2024 election with Dogecoin far from the only cryptocurrency trading higher.

Bitcoin hit several new all-time highs on Monday and is currently trading over $87,000.

Dogecoin hit a one-year high of $0.3278 on Monday and currently trades at $0.3251. While the cryptocurrency is up over 100% in the last seven days, Dogecoin trades below its all-time high which was previously set back in May 2021.

Dogecoin's current all-time high stands at $0.7376, a level reached on the same day Elon Musk appeared on an episode of "Saturday Night Live" and gave the meme crypto several shout-outs.

Musk's call to be in charge of the Department of Government Efficiency, or D.O.G.E. under President-elect Donald Trump has increased attention on Dogecoin.

Read Next:

• If You Invested $100 In Dogecoin When Elon Musk First Tweeted About The Meme Crypto, Here’s How Much You’d Have Today

Photo: Executium via Unsplash

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Spectrum Brands Holdings, Inc. SPB is expected to register top and bottom-line decline when it reports fourth-quarter fiscal 2024 results on Nov. 15, before the opening bell. The Zacks Consensus Estimate for SPB’s fiscal fourth-quarter revenues is pegged at $740.1 million, indicating a decline of 1% from the year-ago quarter.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

The Zacks Consensus Estimate for Spectrum Brands’ fiscal fourth-quarter earnings per share (EPS) is pegged at $1.13 per share, indicating a decline of 16.9% from the figure reported in the year-ago quarter. The consensus mark for EPS has moved down 1.7% in the past 30 days.

In the last reported quarter, the company delivered a negative earnings surprise of 18.5%. SPB has recorded an earnings surprise of 95.8% in the trailing four quarters, on average.

What the Zacks Model Unveils for SPB

Our proven model does not conclusively predict an earnings beat for Spectrum Brands this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.

Spectrum Brands has an Earnings ESP of +10.13% and a Zacks Rank #4 (Sell).

Trends to Watch for SPB's Q4 Eaarnings

Spectrum Brands’ fourth-quarter fiscal 2024 results are expected to benefit from pricing actions, cost efficiencies, volume-driven return across all three segments and a favorable product mix, all of which are expected to have contributed to improved margins. The company’s proactive cost-cutting measures, initiated in the second half of fiscal 2022, include permanent reductions in salaried headcount and cuts to advertising and promotional spending, resulting in a more disciplined cost structure. Gains from these are expected to have aided gross margin in the to-be-reported quarter.

Additionally, the company’s fiscal fourth quarter is expected to reflect gains from the Global Productivity Improvement Plan (GPIP), innovations, and strategic transformation efforts. The ongoing GPIP plan focuses on enhancing operational efficiency and reinvesting savings into growth initiatives like innovation, brand advertising and research and development (R&D).

A significant portion of the savings from this strategy is expected to be reinvested into growth initiatives, consumer insights, R&D and marketing across all business segments. This plan aims to drive value creation and ensure sustainable long-term growth for the company.

To drive top-line growth, Spectrum Brands increased its investments in brand advertising and innovation by approximately $23 million year over year and is on track to invest an additional $50 million in fiscal 2024. These investments are aimed at strengthening its market presence.

Spectrum Brands Holdings Inc. Price and EPS Surprise

Spectrum Brands Holdings Inc. price-eps-surprise | Spectrum Brands Holdings Inc. Quote

The company has been witnessing robust growth in the e-commerce and brick-and-mortar channels. SPB has been streamlining its organizational structure. Such strengths are likely to have aided the bottom-line performance. Its Home & Personal Care segment is expected to have benefited from solid e-commerce growth fueled by savvy digital marketing. On the last reported quarter’s earnings call, management remained optimistic about the upward trajectory of its e-commerce business, with strong recovery noted in small kitchen appliances and global aquatics.

We note that the Zacks Consensus Estimate for SPB’s Home & Personal Care segment’s sales is pegged at $316 million for fourth-quarter fiscal 2024, down 2.1% year over year. The consensus estimate for Global Pet Care segment revenues indicates 3.1% year-over-year growth to $301 million, while Home & Garden segment revenues are pegged at $129 million, implying 3.2% growth year over year.

However, soft demand for small kitchen appliances, volume declines in certain pet channels, and the impact of SKU rationalizations might have continued to act as deterrents. The company has been grappling with geopolitical and macroeconomic uncertainty for a while now. In addition, foreign currency translations are acting as headwinds. These limitations are expected to have hurt the top line in the fiscal third quarter.

SPB Stock’s Price Performance & Valuation Picture

From a valuation perspective, Dillard’s is trading at a premium relative to industry benchmarks. With a forward 12-month price-to-earnings ratio of 14.89X, which is below the five-year high of 57.4X but higher than the Consumer Products – Discretionary industry’s average of 13.22X.

The recent market movements show that SPB’s shares have gained 4.4% in the past three months against the industry's 16.8% decline.

Wolverine World Wide, Inc. WWW reported third-quarter 2024 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Earnings grew year over year, while revenues dipped.

Wolverine posted better-than-expected revenues and earnings in the third quarter, led by the Merrell and Saucony brands coupled with gains from its turnaround plans. The company is focused on becoming more consumer-centric and adopting a global brand-building model. WWW registered another quarter of strong gross margin and more than doubled earnings year over year.

In the past six months, shares of this Zacks Rank #3 (Hold) company have gained 74.1% compared with the industry’s 4.6% growth.

An Insight Into WWW’s Q3 Performance

The company posted adjusted earnings of 29 cents a share, which beat the Zacks Consensus Estimate of 21 cents. The figure increased sharply from 11 cents in the prior-year quarter. At constant currency, the company’s earnings per share were 28 cents, up from 11 cents recorded in the prior-year quarter.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

Total revenues were $440.2 million, down 16.6% on a reported basis and 16.9% on a constant-currency basis. Ongoing revenues of $440.1 million dipped 7% on a reported basis and 7.4% on a constant-currency basis. The top line surpassed the Zacks Consensus Estimate of $422 million. The decline was attributable to lower revenues in most segments and brands. Direct-to-consumer revenues on an ongoing basis were $112.3 million, down 1.5% year over year. WWW’s international business’ revenues on an ongoing basis dropped 2% to $213.8 million.

Regarding segments, Active Group’s revenues dipped 3% year over year to $318.7 million. However, the segment’s revenues beat the Zacks Consensus Estimate of $281.6 million. Revenues at Work Group tumbled 11.3% year over year to $109.1 million but surpassed the consensus estimate of $84.8 million. Revenues of the Other segment plunged 83.7% year over year to $12.4 million. However, the metric comfortably topped the consensus estimate of $3 million.

Wolverine World Wide, Inc. Price, Consensus and EPS Surprise

Wolverine World Wide, Inc. price-consensus-eps-surprise-chart | Wolverine World Wide, Inc. Quote

Brand-wise, Merrell’s revenues rose 1.4% year over year to $159.2 million, while Saucony's revenues fell 10% to $104.8 million and Wolverine's revenues dipped 12.3% to $49.4 million. Sweaty Betty generated revenues of $46.3 million, up 3% year over year. The Zacks Consensus Estimate for the brands’ revenues was pegged at $144.2 million, $81.1 million, $56.3 million and $45.5 million, respectively.

Wolverine’s Margins & Costs

Adjusted gross profit was $199.2 million, up 1.4% year over year. The adjusted gross margin increased 380 basis points (bps) year over year to 45.3%. This resulted from reduced supply-chain costs and fewer sales of end-of-life inventory.

Adjusted operating expenses dipped 2.8% to $165.1 million. However, the metric, as a percentage of revenues, increased 160 bps year over year to 37.5%.

Adjusted operating profit was $34.1 million, up 28.7% year over year. The adjusted operating margin expanded 210 bps year over year to 7.7%.

Wolverine’s Other Financials

Wolverine ended the quarter with cash and cash equivalents of $140.2 million, long-term debt of $567.8 million and stockholders' equity of $296.7 million.

Net debt was $563 million at the end of the quarter, down $373 million from the previous year. Inventory at the end of the quarter was $285.5 million, down 49.4% from the year-earlier quarter.

WWW Outlook for Q4 & 2024

For the fourth quarter, management anticipates revenues for Active Group to decline low single digit year over year, while Work Group revenues are expected to rise low double digits. Brandwise, revenues for Merrell are likely to grow low single digit year over year, Saucony to decrease low double digits, Wolverine to rise low double digits and Sweaty Betty to decline low single digit.

For 2024, the company expects revenues from its ongoing business to be in the range of $1.730-$1.745 billion compared with the previous guidance of $1.71-$1.73 billion. This implies a year-over-year decline in the band of 12.4-13.1%, with a constant-currency decline of 12.6-13.3%. WWW has raised the mid-point of its guidance by $18 million from the view issued in August. The higher demand in Active Group and favorable foreign currency translations will boost sales.

Management anticipates revenues for Active Group to decrease mid-teens year over year and Work Group to drop high single digit. Brandwise, revenues for Merrell are likely to decrease low double digits year over year, Saucony to decrease high teens, Wolverine to decline mid-single digits and Sweaty Betty to remain flat year over year.

Further, the gross margin is still anticipated to expand 460 bps from 2023 to 44.5%, while the operating margin is likely to be roughly 5.8%. The adjusted operating margin is expected at 7.2%, up 330 bps from 2023. Earlier, the company predicted an operating margin of about 6% and adjusted operating margin of 7.4%. Management expects solid margin expansions on supply-chain efforts, product-cost savings, gains from the inventory levels, better mix of full-price sales and brand-protection moves.

For 2024, WWW forecasts the effective tax rate to be around 16.5% compared with the previous outlook of 18.5%. Wolverine envisions earnings per share (EPS) to be in the band of 56-66 cents and adjusted EPS of 80-90 cents. EPS was earlier expected to be in the bracket of 53-63 cents, while adjusted EPS was predicted to be 75-85 cents. The company delivered adjusted earnings of 15 cents per share in 2023. The EPS expectations reflect an approximate 10 cents of negative impact from foreign currency exchange rate translations.

Management expects inventory to decrease by roughly $85 million at the end of the year from the previous year end. The earlier view called for a decrease of at least $75 million. Net Debt at the end of 2024 is likely to be around $545 million, a decline of $195 million from the last-year end and the previous outlook of $565 million. WWW is focused on working-capital and cash-flow optimization. Operating free cash flow is likely to be in the band of $120-$130 million, with roughly $30 million of capital expenditures.

Key Picks

Some better-ranked companies are G-III Apparel Group GIII, Gildan Activewear GIL and lululemon athletica LULU.

G-III Apparel sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

GIII Apparel has a trailing four-quarter earnings surprise of 118.2%, on average. The Zacks Consensus Estimate for GIII’s fiscal 2024 sales indicates an increase of 3.3% from the year-ago period’s level.

Gildan Activewear carries a Zacks Rank #2 (Buy) at present. GIL has a trailing four-quarter earnings surprise of 5.5%, on average.

The consensus estimate for Gildan Activewear’s current financial-year sales and EPS indicates growth of 1.5% and 14%, respectively, from the year-ago levels.

lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS indicates growth of 9.2% and 9.8%, respectively, from the year-ago figures. LULU has a trailing four-quarter earnings surprise of 7.9%, on average.

Zacks Investment Research

lululemon athletica inc. LULU has maintained its growth trajectory through innovative products and strong brand loyalty. However, the company’s current forward 12-month price-to-earnings (P/E) multiple of 21.23X raises concerns about whether the stock's valuation is justified. This multiple is significantly higher than the Zacks Textile - Apparel industry average of 13.55X, making the stock appear relatively expensive.

The price-to-sales (P/S) ratio of lululemon, which is a distinguished name in the athleisure and high-performance sportswear industry, adds to investor unease especially considering its low Value Score of D, which suggests that it may not be a strong value proposition at current levels.

lululemon’s Premium Valuation Surpasses Peers

At 21.23X P/E, lululemon is trading at a valuation much higher than its competitors. Its competitors, such as Columbia Sportswear COLM, Ralph Lauren RL and Crocs Inc. CROX, are delivering solid growth and trade at more reasonable multiples. COLM, RL and CROX have forward 12-month P/E ratios of 20.23X, 18.35X and 7.73X — all significantly lower than lululemon. At such levels, LULU’s stock valuation seems out of step with its growth trajectory.

The stock’s premium valuation suggests that investors have strong expectations for lululemon’s growth potential. However, the stock currently seems somewhat overvalued. As a result, investors might be hesitant to buy at these elevated levels and prefer to wait for a more favorable entry point.

While LULU’s share price has risen 32.4% in the past three months after witnessing significant declines since the start of 2024, many investors are questioning whether the recent recovery presents a buying opportunity. After the recent recovery in the past three months, the lululemon stock has outpaced the broader industry’s 17.6% rise. The stock also outperformed the Consumer Discretionary sector’s growth of 14.4% and the S&P 500’s rally of 11% in the same period.

LULU’s 3-Month Price Performance