Lululemon Earnings: On Track to Meet Expectations Despite Slowdown in Americas; Shares Expensive

After dropping 40% since the beginning of the year, narrow-moat Lululemon’s shares rose 10% in June 5 postmarket trading as its first-quarter results surpassed prior guidance and our estimates. The firm lifted its 2024 EPS outlook to $14.27-$14.47 from $14-$14.20, which should lead us to increase our $285 fair value estimate by a low-single-digit percentage. However, of some concern, sales growth in the Americas (73% of the total) was well below typical double-digit rates; comparable sales in the region were flat. The company cited some shortages of women’s merchandise, but we also think that strong sales of bags over the past year may have masked a slowdown in core leggings. Competition in this category is nothing new, but we think it is intensifying.