Lululemon Stock ( NASDAQ:LULU )
Investors were surprised when Lululemon Athletica Inc. ( NASDAQ:LULU ) lowered its gross margin guidance for FQ4’23, which could mean worse inventory adjustments. It also happened at the same time that its sales forecast went up. Still, investors probably paid the most attention to how retailers’ more aggressive advertising campaigns during the holiday season affected the stock market.
Lululemon Could Make a Comeback in FY2024
In its FQ3’23 earnings commentary, LULU said it was confident that supply chain dynamics would improve. So, when investors look at the company’s future, the change in gross margin guidance from last year is not a good sign.
As a result, Lululemon said that its Q4 gross margin is likely to drop 100 basis points (bps) year over year, which is a bigger drop than the 15 basis point (bps) change it had predicted before.
So, LULU expects its Q4 gross margin to be around 57.1%, less than 58.1% a year ago. Still, this number is better than the FQ3 number of 55.9%, which suggests that the worst of the company’s write-downs are over. Also, the company emphasized that it has OpEx levers it can pull to lessen the effect. For example, “general and administrative expenses are 100 to 120 basis points higher than its previous expectation of 30 to 50 basis points of leverage,” the company can use these expenses to its advantage.
It makes sense for investors to think that Lululemon could still make a comeback in FY24 if its business in China keeps getting better.
Notably, management lowered its FQ4 adjusted EPS guidance range to $4.22 to $4.27, which suggests a midpoint of around $4.245. It is also a little less than the $4.25 it said it would be before. So, investors will be watching to see if the outlook for FY23 will get better or worse as macroeconomic conditions get worse.
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