Lululemon Skids 6% As 3Q Profit Expected To Drop

Shares of Lululemon Athletica dropped 6.2% in after-hours on Tuesday after the company said that it is “cautiously optimistic with regard to the holiday season” and expects 3Q profit to plunge as much as 20%.

Meanwhile, Lululemon (LULU) reported 2Q results which exceeded analysts’ expectations fueled by a 155% surge in direct-to-consumer sales. However, the The yoga wear and athletic apparel retailer anticipates 3Q adjusted profit to decline up to 20% year-over-year due to higher marketing expenses.

Lululemon’s 2Q revenues rose 2% to $902.9 million year-on-year, surpassing analysts’ expectations of $857.1 million. The retailer’s adjusted EPS plunged 23% to $0.74, beating Street estimates of $0.56 during the same comparative period. Profit dropped mainly due to increased cost of revenue and higher SG&A expenses because of temporary store closures, reduced operating hours, and limited guest occupancy amid the COVID-19 pandemic. (See LULU stock analysis on TipRanks).

Following its earnings, Guggenheim analyst Robert Drbul raised the stock’s price target to $400 (14.6% upside potential) from $350 and reiterated a Buy rating. Drbul stated that “We continue to view LULU as one of the strongest brands in retail, with favorable secular tailwinds today (health/wellness, casualization, increased fitness activity, including at-home via MIRROR).”

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 17 Buys and 10 Holds. With shares up nearly 51% so far this year, the average price target of $369.17 implies further upside potential of about 5.5%.

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