Lululemon Athletica stock (NASDAQ: LULU) poised to rebound following a drop of more than 31% from their all-time high set in late 2021. Following the new Q4 outlook, the market may fall further, but it's not likely this will happen.
The market has been down, but on the charts it appears to be capitulating, which is an opportunity for investors seeking to take advantage of the next rally. Based on current developments, analyst expectations, and institutional buying we believe the next rally is imminent.
Lululemon Revises Guidance
Lululemon issued updated guidance less than a month after outperforming the analysts' consensus for Q3 results. The firm claims that Omicron is reducing its already stretched labor force and supply chain, which might have a negative impact on Q4 earnings. The new guidance is for revenue and earnings to come in at the low end of the previously stated ranges which compares negatively to the current consensus estimates. The upshot is that demand remains strong so sales will likely shift to digital channels at least in part.
“We are closing out a strong 2021 in the coming weeks, and we’re pleased with how lululemon has delivered over the course of the year. We started the holiday season in a strong position but have since experienced several consequences of the Omicron variant, including increased capacity constraints, more limited staff availability, and reduced operating hours in certain locations …” said Calvin McDonald CEO of Lululemon.
The upside danger in the guidance is considerable. While there is a negative influence from Omicron, the effects are already dissipating in some areas and there are indications that store visits are on the upswing.
Analyst Camillo Lyon at BTIG says, "while Omicron dealt a blow to LULU's store performance at the worst possible time (two very high volume weeks before Christmas) just as the window for e-commerce shipments to arrive in time for the holiday was closing, the good news is traffic has already started rebounding as the worst of Omicron infections appears to have peaked.”
Mr. Lyon also highlighted LULU's digital success, adding that the company outpaced his expectations, maintaining a buy rating with a lower price target of $489.
Lululemon Athletica Stock Most Downgraded In Start Of 2022
Lululemon stock is the most-downgraded stock in the first two weeks of the new year, owing to a change in corporate direction. The company has been subject to 12 negative price target adjustments, however this should be taken with a grain of salt. There were 12 price cuts, but the new consensus is still predicting a 28 percent rise in the stock, and the high price target adds another 18% on top of that. The sentiment is growing more negative, marginally, but the analyst's community remains strongly bullish on the company and rates it a solid Buy.
When comparing the new guidance to the prior, we see that price action has capitulated. When the bulls give up and the bears sputter out their last stand, it's known as capitulation. Price action in this case gapped down to a major support level and immediately reversed course. The price motion is now rising, and the indicators are on board for further growth. The MACD and stochastic indicators are divergent from the new lows, and the stochastic crossover is up. Price action may not begin to rise immediately after that, but we anticipate a significant improvement by late March, when the firm issues its earnings results for the first time since January. That’s when the rally will likely begin.