Lululemon Earnings: What to Watch on March 29

Lululemon Athletica (LULU 0.98%) is slated to report its results for the fourth-quarter and full-year fiscal 2021 (ended on Jan. 30, 2022) after the market close on Tuesday, March 29. An analyst conference call is scheduled for the same day at 4:30 p.m. ET.

Investors in the athletic apparel retailer will probably be approaching the report itself with optimism. The company has sprinted past Wall Street's earnings estimates in each of the three quarters of fiscal 2021 that it's reported so far. Moreover, it's also been beating the Street's revenue expectations.

When it comes to the market's reaction to the fourth-quarter report, however, investors might be feeling somewhat more cautious. Like most growth stocks and other stocks that are interest-rate sensitive, Lululemon has been struggling since late last year. That's when market participants began to widely anticipate that a good number of Federal Reserve interest rate hikes were on the 2022 horizon. (The first such increase -- for 0.25% -- occurred last week.)

In 2022, shares are down 19% through March 18. Including dividends, the S&P 500 and tech-heavy Nasdaq Composite have declined 6.1% and 11.1%, respectively, over this period. 

With this context in mind, here's what to watch in Lululemon's upcoming report.

Image source: Getty Images.

Lululemon's key quarterly numbers

Data sources: Lululemon Athletica and Yahoo! Finance. Fiscal Q4 2021 ended on Jan. 30, 2022.

In mid-December, when the company released its fiscal third-quarter results, management issued the fourth-quarter guidance ranges shown in the preceding table. Then, on Jan. 10, the company issued a press release stating that it now expects both revenue and earnings to come in "toward the low end" of the previously issued guidance ranges.

CEO Calvin McDonald attributed the tweaking of the outlook to the effects of the highly transmissible omicron variant of the coronavirus: "We started the holiday season in a strong position but have since experienced several consequences of the omicron variant, including increased capacity constraints, more-limited staff availability, and reduced operating hours in certain locations."

For context, last quarter (essentially the August to October 2021 period), Lululemon's sales surged 30% year over year to $1.45 billion, exceeding the $1.44 billion Wall Street had expected. Growth was driven by a 32% jump in company-operated same-store sales and a 23% increase in direct-to-consumer revenue. Adjusted net income soared 40% to $211.3 million, or $1.62 per share. That result sped by the $1.41-per-share analyst consensus estimate.

Mirror annual results 

Last quarter, management lowered its full-year revenue guidance for Mirror to a range of $125 million to $130 million. The initial outlook, set in early 2021, was for annual revenue of $250 million to $275 million. Management also reiterated its prior outlook that its home connected-fitness business will dilute full-year adjusted EPS by just 3% to 5%.

Reiterating what I wrote in my third-quarter earnings article: "While this [revenue] guidance cut is sizable, investors shouldn't be concerned. Lululemon is in the early innings of its ownership of Mirror, which accounts for less than 3% of its total revenue."

What we don't want to see, however, is the company sink too much money into Mirror. It's one thing for Mirror's revenue growth to be slower than expected, but it could become a concern if management allows this business to hurt Lululemon's overall profitability to any significant degree.   

Athletic shoe launch

On the earnings call, investors can expect management to comment on the launch of the company's first branded athletic shoe.

Earlier this month, Lululemon announced its official entrance into the footwear category. Its debut shoe is the Blissful, a running shoe for women, which will be available online and in select stores across North America, Mainland China, and the United Kingdom beginning on March 22. So footwear revenue should start providing a kick (pun intended) to total revenue in the fiscal first quarter of 2022, essentially the February-to-April period.

The company plans to roll out three additional shoe styles for women this year and enter the men's footwear space in 2023.

Guidance 

Because the market looks ahead, Lululemon's guidance, relative to Wall Street's expectations, should be a major factor in the market's reaction to its fourth-quarter 2021 report. For the first quarter of 2022, analysts are modeling for revenue to rise 15% year over year to $1.41 billion and adjusted EPS to increase 11% to $1.29.