Lululemon Athletica (LULU, Financial) witnessed a significant stock drop of 20.18% today, despite slightly surpassing earnings expectations. The company's revenue of $2.37 billion met analyst predictions, and earnings per share of $2.60 slightly exceeded estimates of $2.59. However, the unfavorable earnings guidance for the upcoming quarters has weighed heavily on investor sentiment.
In the first quarter, Lululemon saw a 7% increase in overall sales year over year, while same-store sales grew by only 1%. Although there was an improvement in the gross profit margin, the operating margin contracted by 110 basis points to 18.5%. This resulted in a modest 2% growth in earnings per share, hindered by reduced profit margins.
The company's forecast for the second quarter projects sales growth between 7% and 8%, reaching up to $2.56 billion. However, earnings guidance between $2.85 and $2.90 per share fell short of analyst expectations of $3.32. This discrepancy in expectations has contributed to the bearish outlook on LULU stock.
For the full year, Lululemon anticipates sales growth between 5% and 7%, translating to a total of $11.15 billion to $11.3 billion. Earnings are projected to fall between $14.58 and $14.78 per share. Concerns about higher tariffs potentially impacting sales growth further intensify the negative sentiment around the stock.
In terms of valuation, LULU's current price stands at $264.03, with a market capitalization of $31.72 billion. The company has a price-earnings (PE) ratio of 17.96, which is close to its 10-year low, indicating potential undervaluation. Additionally, the company's price-to-book (PB) and price-to-sales (PS) ratios are near their respective 5-year lows, suggesting attractive valuation metrics.
Lululemon's financial strength is underscored by an Altman Z-score of 9.58, which points to strong financial health. The company's GF Value is evaluated at $489.78, categorizing the stock as "Significantly Undervalued," according to GF Value.
Despite the current downturn in LULU stock, the company's historical revenue growth rate over the past five years has been impressive at 25.3%. The company's profitability is robust, with an operating margin expansion being a positive sign amidst current challenges. Investors seeking long-term value might find LULU appealing due to its historical growth and robust financial indicators, even in the face of short-term market fluctuations.
