Lululemon Athletica (LULU) will report earnings after the bell today, with investors looking for the company to exceed earnings estimates for the 9th consecutive quarter.
LikeFolio’s consumer insights data is suggesting that the company will likely report a strong Q4 2022, but may have to temper expectations for the quarter currently underway, and perhaps the entire outlook for 2023.
High-End for the win
First off, the good news – Lululemon’s focus on the high-end, more expensive products puts it on the right side of the apparel dividing line right now:
Like many other industries, the high-end/luxury segment is strong, while everything else in apparel is struggling.
A good holiday season… but…
LULU looks to have had a good Q4, with LikeFolio consumer demand levels tracking +8% higher year over year.
But an industry-wide slowdown hit the apparel sector in February…and LikeFolio data shows that Lululemon was likely not immune, as consumer demand levels for the current quarter are pacing -14% lower than this time last year.
This slowdown is likely to give executives pause when discussing the outlook for the first quarter of 2023 and the full year.
Are LULU customers abandoning ship?
Long known for the loyalty of its customer base, Lululemon has had the luxury of being the first and last stop for consumers looking to add high-end athleisure outfits to their wardrobe.
But that may be starting to change.
LikeFolio’s measures of consumer happiness show that LULU just isn’t thrilling customers like it used to, leading to the largest drop in overall consumer happiness among its peers over the last three years.
In addition to competitive pressures heading up, LULU is starting to see competition… from itself.
Search volume for “Lululemon dupes” has begun to surge recently, indicating that cost-conscious consumers are looking for lower-cost alternatives, or knockoffs, that give them a similar look and feel without the full LULU price tag.
Bottom line -- Great clothes, great company… but let’s wait on the stock
Betting against LULU has rarely worked… this is a fantastic company that makes great products that people still love.
They’re just facing some headwinds that are likely to limit the 2023 upside.
Tomorrow LULU will become another in a long line of companies that befuddle investors when the “stock is down after reporting earnings that beat expectations.”