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Stocks to Watch in September

By John Ballard – Aug 27, 2021 at 6:00AM

Key Points

  • Analysts expect Lululemon to grow revenue by 47% year over year in the fiscal second quarter.
  • Stitch Fix is looking for the rollout of its direct buy service to expand its addressable market.
  • Nike could see further improvement in gross margin with continued growth in the Nike Direct business.

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Three hot retail brands will report earnings next month.

Earnings season might be over for most companies, but it's just getting started for some major brands in the retail industry. Three upcoming earnings reports from Lululemon Athletica (LULU 0.17%), Stitch Fix (SFIX 3.74%), and Nike (NKE -0.65%) will be must-watch events in September.

Here's a review of recent trends at these companies, and what investors should watch.

A person practicing yoga at home.

Image source: Getty Images.

Lululemon Athletica

Lululemon hasn't yet scheduled its fiscal Q2 earnings release but will likely report sometime in the first half of September. The yoga specialist has momentum entering the report. In the last quarter, revenue increased by 88% year over year to $1.2 billion, driven by a rebound in traffic at company-operated stores. What was really eye-opening was that e-commerce revenue advanced 55% year over year, even as store traffic returned

Analysts expect Lululemon to report revenue of $1.33 billion, up 47% year over year. Earnings per share are expected to be $1.18, compared to $0.74 in the year-ago quarter.

E-commerce has been sailing along, so store performance will be in the spotlight in the upcoming earnings report. Management mentioned last quarter that they were still dealing with operating challenges, such as store closures in some locations, supply constraints at the ports, and reduced air freight capacity. 

Other than that, investors should watch sales updates for Mirror, the maker of interactive fitness displays that the company purchased for $500 million last year. During the fiscal Q1 earnings call, management said Mirror was on pace to deliver $250 million to $275 million in revenue for fiscal 2021. 

Mirror has the potential to grow into a large business for Lululemon, given the expected growth in the virtual fitness market over the next several years. 

Investors have high expectations, with the stock up 27% over the last three months and trading at a high forward price-to-earnings ratio of 57. If you're thinking of buying shares, it might be best to wait until after the earnings report. Any negative surprises, like an earnings miss, could cause near-term volatility in the stock price.

Stitch Fix

Stitch Fix is scheduled to report earnings on Tuesday, Sept. 21 after the market closes. The digital styling service has had shareholders on a wild rollercoaster ride this year, but investors should be encouraged that the underlying business has been moving in a positive direction. In the most recent quarter, revenue growth accelerated to 44% year over year, driven by active client growth of 20%, reaching 4.1 million. 

Revenue per active client was down 3% year over year, but management credited this to the recent wave of new signups that haven't yet spent enough time with the platform to have an effect. Investors should watch to see if this metric returns to growth in the next report.

In the previous report, CEO Elizabeth Spaulding, who took the baton from founder Katrina Lake in August, suggested that Stitch Fix was well positioned for the reopening of the economy. "We're pleased with our performance this quarter and are excited to meet the needs and enthusiasm of more and more clients as the world continues to reopen and the apparel retail backdrop improves," she said. 

One catalyst that may not have a huge effect on the fiscal fourth quarter but could lead to better growth over the next year is the rollout of direct buy to new clients. This feature was introduced recently for new clients, which allows them to shop directly from the company without having received a previous Fix.

Management believes features like direct buy, which allows clients to have more control over what items they receive, could significantly expand the company's addressable market. 

Analysts expect Stitch Fix to report revenue of $547 million, representing year-over-year growth of 23.6%. Stitch Fix is investing heavily in technology and new features, so don't expect the company to report a profit. Analysts anticipate the company to report a loss of $0.13 per share.

However, a surprise profit could send the stock higher. Investors have low expectations heading into this earnings report, with the stock price down 27% over the last month. 

Two soccer players practicing drills on a soccer field.

Image source: Getty Images.

Nike

Nike is scheduled to report fiscal first-quarter earnings on Thursday, Sept. 23 after the market closes. In the previous quarter, revenue increased by 96% year over year, which was an easy comparable with the year-ago store closures hurting sales. But even comparing to fiscal fourth-quarter 2019, revenue was up 21%, which Nike credited to better wholesale demand as store traffic starts to come back. 

The stock is up 27% over the last three months. What seems to be boosting investor enthusiasm is that Nike's digital sales are maintaining strong momentum even as store traffic returns, like what Lululemon is experiencing.

Nike Direct, which includes performance from digital channels and company-operated stores, saw fiscal Q4 sales increase by 73% to $4.5 billion. Nike said fiscal 2021 digital sales, specifically, were up 37% year over year and more than double the sales level in fiscal 2019. 

Nike Direct generates higher margins than the rest of the company's business, so investors should watch how gross margin performs in the fiscal first quarter. Gross margin jumped 850 basis points to 45.8% in the previous quarter. Nike's long-term goal is for gross margin to reach the high 40s by fiscal 2025, as the digital business increases as a mix of total revenue. 

Analysts expect Nike to report $12.46 billion in total revenue for the fiscal first quarter, representing year-over-year growth of 17.5%. Earnings per share are expected to be $1.11, up 16.8%.

During the fiscal Q4 earnings call, CEO John Donahoe said, "Today, we are better positioned to drive sustainable long-term growth than we were before the pandemic." He cited tailwinds, such as the return to sports and "permanent shifts in consumer behavior toward digital and wellness," that he sees further fueling Nike's growth over the long term. 

One last thing

There is still a lot of uncertainty over the duration of the pandemic, especially with the spread of the COVID-19 delta variant. Further spreading of the virus could cause unforeseen disruptions to retail supply chains that could cause results to be lower than expected. We'll know more when Lululemon, Stitch Fix, and Nike report next month.

John Ballard owns shares of Stitch Fix. The Motley Fool owns shares of and recommends Lululemon Athletica, Nike, and Stitch Fix. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Nike Stock Quote
Nike
NKE
$105.96 (-0.65%) $0.69
Lululemon Athletica Stock Quote
Lululemon Athletica
LULU
$361.16 (0.17%) $0.63
Stitch Fix Stock Quote
Stitch Fix
SFIX
$4.16 (3.74%) $0.15

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