Promising Performance Meets Market Skepticism
Despite surpassing Wall Street’s top and bottom line predictions in their latest quarterly reports, sports retail giants Nike NKE and Lululemon LULU found themselves on the receiving end of declining stock prices due to slightly lukewarm guidance projections.
The stock values of Nike and Lululemon have taken a hit, down -13% and -20% respectively year-to-date, leaving investors pondering whether it’s an opportune moment to seize the downturn in these two notable retailers.
Overperforming but Underwhelming Growth Projections
Nike’s latest earnings showed an impressive 24% year-over-year increase to $0.98 per share, trouncing Q3 estimates by 42%. Sales edged up to $12.42 billion, slightly exceeding expectations. However, the sports shoe behemoth is bracing for a downturn in revenue during the first half of FY25, citing a period of subdued economic activity necessitating product portfolio innovation to stay ahead.
On the other hand, Lululemon displayed robust performance with a 20% jump in earnings to $5.29 per share, surpassing estimates by 5%. Despite a 15% sales surge in the fourth quarter, the yoga-inspired brand attributed its soft revenue forecast to sluggish consumer demand, estimating lower-than-anticipated sales for the upcoming fiscal quarter. Nonetheless, its sales outlook for FY25 still shows an upward trajectory, albeit not as steep as initially projected.
Forecasting the Future: Bright Spots Amid Overcast Skies
Nike’s earnings projections remain steady for FY24, with an anticipated 9% rise in EPS. Looking forward to FY25, an additional 16% growth to $4.12 per share is forecasted.
In contrast, Lululemon’s projections signal a more cautious approach, with its first-quarter EPS expected to hover between $2.35-$2.40, falling short of Zacks estimates. The company anticipates full-year EPS for FY25 to be in the range of $14.00-$14.20, a less optimistic figure compared to the initial projections. Despite this, FY26 forecasts show a promising 15% jump to $16.61 per share.
Investor’s Dilemma: Weathering the Storm or Bailing Out?
While Nike and Lululemon are navigating through growth hiccups, both holding a Zacks Rank #3 (Hold) currently, the road ahead appears laden with challenges. Long-term investors may find solace in weathering short-term economic turbulence by holding onto stocks in these retail juggernauts. However, the gusts of market uncertainty could potentially alter their growth trajectories.