In a twist of fate, both Nike’s NKE and Lululemon’s LULU stellar quarterly results were met with a dip in their stock prices after issuing softer guidance.
Question looms for investors: Is it time to seize the opportunity and invest in these industry giants, with Nike’s shares down -13% year to date and Lululemon’s plummeting -20%.
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Earnings Triumph
Nike’s fiscal third quarter earnings showcased a robust performance with a 24% year-over-year surge to $0.98 per share, surpassing Q3 expectations by 42%. With quarterly sales hitting $12.42 billion – a slight uptick from the previous year – the sports giant has consistently outperformed, surprising the market with an average earnings beat of 22.55% over the last four quarters.
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On the other hand, Lululemon reported soaring Q4 earnings of $5.29 per share, beating estimates by 5% with a remarkable 20% increase from the previous quarter. Bolstered by a 15% surge in fourth-quarter sales to $3.2 billion, Lululemon has consistently surpassed earnings expectations for 15 quarters, boasting an average beat of 9.68% in the last four quarterly reports.
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Cautionary Sales Projections
However, concerns arose as both Nike and Lululemon presented subdued revenue forecasts. While Nike anticipates a modest 1% sales growth in fiscal 2024 in line with market expectations, it forewarned of a single-digit revenue decline in the first half of FY25 amidst product portfolio restructuring within a challenging economic backdrop.
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Likewise, Lululemon attributed its conservative Q1 sales guidance to weakened consumer demand, projecting sales of $2.17 billion to $2.2 billion compared to Zacks’ estimate of $2.27 billion. The athleisure brand expects total sales for FY25 to range between $10.7-$10.8 billion, marking an 11-12% increase, slightly lower than Zacks’ growth projection of $10.92 billion with 13% growth.
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Future Earnings Prospects
Nike maintains its FY24 net income projection, with expected earnings per share (EPS) growth of 9% to $3.54 based on Zacks estimates. Looking ahead, FY25 earnings are set to jump another 16% to $4.12 per share.
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Conversely, Lululemon’s Q1 EPS guidance of $2.35-$2.40 lies below Zacks’ forecast of $2.55 per share, indicating 12% growth. The company’s full-year FY25 EPS range of $14.00-$14.20 lags behind Zacks’ consensus of $14.36 per share with over 12% growth. Furthermore, FY26 is anticipated to witness a 15% hike in EPS to $16.61 per share based on Zacks’ estimates.
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In Conclusion
Despite growth uncertainties, both Nike and Lululemon retain a Zacks Rank #3 (Hold). Patient investors could reap rewards from investing in these consumer giants at current valuations, although short-term market dynamics may sway their trajectory.
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