Tag: Lululemon Athletica Inc

Nike sinks 12% after it slashes sales outlook, unveils $2 billion in cost cuts

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Nike on Thursday unveiled plans to cut costs by about $2 billion over the next three years as it lowered its sales outlook.

The stock fell about 12% in premarket trading Friday. Nike shares were up 4.7% so far this year through Thursday’s close, lagging far behind the S&P 500’s gains for the year. Retailer Foot Locker, which has leaned heavily on Nike products, fell about 8% in extended trading.

Nike now expects full-year reported revenue to grow approximately 1%, compared to a prior outlook of up mid-single digits. In the current quarter, which includes the second half of the holiday shopping season, Nike expects reported revenue to be slightly negative as it laps tough prior year comparisons, and sales to be up low single digits in the fourth quarter.

“Last quarter as I provided guidance, I highlighted a number of risks in our operating environment, including the effects of a stronger U.S. dollar on foreign currency translation, consumer demand over the holiday season and our second half wholesale order books. Looking forward, the impact of these risks is becoming clearer,” finance chief Matthew Friend said on a call with analysts.

“This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA. Adjusted digital growth plans are based on recent digital traffic softness and higher marketplace promotions, life cycle management of key product franchises and a stronger U.S. dollar that has negatively impacted second-half reported revenue versus 90 days ago.”

The company still expects gross margins to expand between 1.4 and 1.6 percentage points. Excluding restructuring charges, it expects to deliver on its full-year earnings outlook.

As part of its plan to cut costs, Nike said it’s looking to simplify its product assortment, increase automation and its use of technology, streamline the overall organization by reducing management layers and leverage its scale “to drive greater efficiency.”

It plans to reinvest the savings it gets from those initiatives into fueling future growth, accelerating innovation and driving long-term profitability.

“As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management,” Friend said in a press release.

The plan will cost the company between $400 million and $450 million in pretax restructuring charges that will largely come to fruition in Nike’s current quarter. Those costs are mostly related to employee severance costs, Nike said.

Earlier this month, The Oregonian reported that Nike had been quietly laying off employees over the past several weeks and had signaled that it was planning for a broader restructuring. A series of divisions saw cuts, including recruitment, sourcing, brand, engineering, human resources and innovation, the outlet reported.

The company didn’t immediately respond to CNBC’s request for comment on The Oregonian’s report.

During Nike’s fiscal second quarter, it posted a strong earnings beat, indicating its cost-savings initiatives were already underway. But, for the second quarter in a row, it fell short of sales estimates, which is the first time Nike has seen consecutive quarters of revenue misses since 2016.

Here’s how the sneaker giant performed compared to what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

  • Earnings per share: $1.03 vs. 85 cents expected
  • Revenue: $13.39 billion vs. $13.43 billion expected

The company reported net income for the three-month period that ended Nov. 30 was $1.58 billion, or $1.03 per share, compared to $1.33 billion, or 85 cents per share, a year earlier.

Sales rose about 1% to $13.39 billion, from $13.32 billion a year earlier.

Nike is considered a leader among industry peers such as Lululemon, Adidas and Under Armour, but its profits have been under pressure and it has been in the middle of a strategy shift that has seen it rekindle its relationships with wholesalers including Macy’s and Designer Brands, the parent company of DSW.

Focus on margins

For the past six quarters, Nike’s gross margin has declined compared to the prior-year period, but the story turned around on Thursday. Nike’s gross margin increased 1.7 percentage points to 44.6%, slightly ahead of estimates, according to StreetAccount.

This time last year, Nike’s inventories were up a staggering 43% and the retailer was in the middle of an aggressive liquidation strategy to clear out old styles and make way for new ones, which weighed heavily on its margins. Several quarters later, however, Nike is in a far better inventory position, which is a boon for margins.

During the quarter, inventories were down 14% to $8 billion.

Nike’s gross margin turnaround came as the retail environment overall has been flooded with steep promotions and discounts as retailers struggle to convince inflation-weary consumers to pay full price. In September when Nike reported fiscal first-quarter earnings, finance chief Friend said Nike was “cautiously planning for modest markdown improvements” given the overall promotional environment.

While the company repeatedly pointed out the overall promotional environment, it said the average sales price of footwear and apparel were up during the quarter and the average selling price grew across channels with higher-priced products proving particularly “resilient.”

The company attributed the gross margin uptick to “strategic pricing actions and lower ocean freight rates,” saying it was partially offset by unfavorable foreign exchange rates and higher product input costs.

As one of the last retailers to report earnings before the December holidays, investors are eager to hear good news when it comes to Nike’s expectations for the crucial shopping season. When many retailers issued holiday-quarter guidance in November, the commentary was largely tepid and cautious as companies looked to under promise and over deliver in an increasingly uncertain macro environment.

Nike struck a note that hit somewhere in the middle. Its sales miss and focus on cost cuts signal larger demand issues, but CEO John Donahoe was upbeat when discussing Black Friday week sales.

“We outpaced the industry, driving growth of close to 10%, Nike digital had its strongest Black Friday week ever and a record number of consumers shopped in our stores over the long Thanksgiving weekend,” said Donahoe.

China is another key part of the Nike story. As the region emerges from the Covid-19 pandemic and widespread lockdowns, China’s economic recovery has so far been a mixed bag. In November, retail sales climbed 10.1% in the region.

It was the fastest pace of growth since May, but those numbers were up against easy comparisons and the growth was largely driven by car sales and restaurants, according to a research note from Goldman Sachs.

During the quarter, China sales came in at $1.86 billion, which fell short of the $1.95 billion analysts had expected, according to StreetAccount. Sales in Europe, the Middle East and Africa also fell short of estimates, but revenue came in ahead in the North America, Asia-Pacific and Latin America markets, according to StreetAccount.

Read the full earnings release here.

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Jim Cramer’s top 10 things to watch in the stock market Thursday

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My top 10 things to watch Thursday, Dec. 14

1. U.S. stocks are higher in premarket trading Thursday, with S&P 500 futures up 0.46%. Equities rallied Wednesday after the Federal Reserve held interest rates steady, while indicating it would cut rates three times in 2024 — a decision more dovish than I expected. Meanwhile, bond prices are also strengthening, with the yield on the 10-year Treasury falling below 4%.

2. Toll Brothers announces a new $20 million share-buyback program — and there are only 100 million shares. But CEO Doug Yearley thinks it’s ridiculous that his stock sells at eight-times earnings when it’s more of a secular grower, despite changes in the housing industry.

3. UBS upgrades Club holding Coterra Energy to buy from neutral, citing its strong balance sheet strength and oil diversification. But the firm lowered its price target to $31 a share, down from $33.

4. Piper Sandler raises its price target on Club name Amazon to $185 a share, up from $170, while maintaining an overweight rating on the stock. The firm cites improving retail margins and an expected acceleration at cloud unit Amazon Web Services. Amazon is Piper’s top large cap pick.

5. Stifel raises its price target on Lululemon Athletica to $596 a share, up from $529, while reiterating a buy rating on the stock. The firm argues that “still sound” U.S. consumer balance sheets and wage growth should support margin expansion for companies like Lululemon with “brand specific drivers.”

6. Nike is back. Baird raises its price target on the sneaker company to $140 a share, up from $125, while keeping an outperform rating on the stock. Nike’s “quality growth profile plus margin recovery potential support a continued favorable outlook,” the firm contends.

7. Mid-stage trial data shows that Merck and Moderna‘s experimental cancer vaccine, used in conjunction with Merck’s Keytruda therapy, reduces the risk of death or relapse in patients with melanoma skin cancer after three years.

8. JPMorgan raises its price target on L3Harris Technologies to $240 a share, up from $213, while maintaining a neutral rating on the stock. The firm has “high confidence” in the aerospace-and-defense-technology company’s targets for sales and cash flow.

9. Piper Sandler upgrades Club holding Foot Locker to overweight from neutral, while raising its price target to $33 a share, up from $24. The firm cites Foot Locker’s margin expansion opportunity in 2024, arguing the company is best positioned among the athletic-and-footwear group over the next year.

10. Bernstein raises its price target on FedEx to $340 a share, up from $305, while reiterating an outperform rating on the stock. FedEx, which Bernstein expects to benefit from cost cuts and improved international market conditions, is set to report quarterly results on Dec. 19.

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Jim Cramer’s top 10 things to watch in the stock market Friday

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My top 10 things to watch Friday, Dec. 8

1. U.S. stocks are lower in midmorning trading, with S&P 500 futures down 0.3% and on track to break a five-week winning streak. But the Nasdaq Composite, down 0.55% in early trading, looks set to post a sixth-consecutive week of gains. Bond yields tick up slightly, with that of the 10-year Treasury hovering just below 4.2%.

2. Oil prices pare some of their recent losses, climbing by more than 2% Thursday morning. West Texas Intermediate crude, the U.S. oil benchmark, is now back above $70 a barrel but is still down for seven-straight weeks.

3. Club holding Honeywell International reaches a deal to buy Carrier Global‘s security business for $4.95 billion. Carrier will reportedly use the money from Honeywell to accelerate its debt paydown. The companies expect the all-cash transaction to close before the end of the third quarter of 2024.

4. Club holding Broadcom reports mixed fiscal fourth-quarter results, missing on revenue but delivering strong profits. And tailwinds from artificial intelligence and the company’s acquisition of VMware should keep profits growing and more than offset some of the cyclical parts of the semiconductor business.

5. Mizuho raises its price target on Broadcom to $1,000 a share, up from $960, while maintaining a buy rating on the stock. The firm cites the semiconductor firm’s strong guidance, along with its industry-leading margins and free cash flow.

6. India’s Tata Group plans to build one of the country’s biggest iPhone assembly plants, with roughly 20 assembly lines and 50,000 workers, Bloomberg reports. The new factory would help Club holding Apple in its efforts to diversify its supply chain and expand its presence in India.

7. Morgan Stanley raises its price target on Apple to $220 a share, up from $210, while reiterating an overweight rating on the stock. The firm says the macroeconomic backdrop is still a challenge for Apple, but argues that excitement around Edge AI, services, and gross margin strength “reignites the bull case.”

8. Bernstein calls Tesla a “best idea,” outlining the short case for the electric-vehicle maker in 2024. “In our view, Tesla’s key challenge is that it has a demand problem due to its narrow (and expensive) product family of essentially two vehicles,” Bernstein analysts write. The firm has an underperform rating on Tesla stock, with a price target on $150 a share.

9. Mizuho raises its price target on DoorDash to $120 a share, up from $105, while reiterating a buy rating on the stock. The firm expects continued margin expansion, as the food-delivery platform continues to gain market share.

10. Lululemon Athletica delivers strong third-quarter results, while reporting a positive start to the holiday shopping season. The athletic-apparel retailer receives a slew of price-target raises Friday from Wall Street firms — including Barclays, which goes to $530 a share, up from $480, with a buy rating on the stock.

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THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER.  NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB.  NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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Top Wall Street analysts say these stocks have the best growth prospects

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CrowdStrike IPO at the Nasdaq exchange June 12, 2019.

Source: Nasdaq

While macro uncertainty continues to distract investors, it is prudent to focus on companies that are well-positioned to navigate challenges with their solid execution and deliver attractive growth over the long term by capitalizing on secular trends. 

Here are five such stocks chosen by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performance.

Zscaler

First, we will look at cybersecurity solutions provider Zscaler (ZS). Earlier this month, the company reported its fiscal fourth-quarter results and outlook, which topped Wall Street’s expectations. That said, management cautioned that deals are taking longer to close due to a challenging macro backdrop.

Praising Zscaler’s performance, TD Cowen analyst Shaul Eyal said that the rising demand for the company’s Zero Trust solutions and disciplined spending drove the fourth-quarter outperformance.

The analyst noted that over the past seven quarters, Zscaler’s annual recurring revenue (ARR) has doubled to $2 billion from $1 billion. Other interesting points that the analyst focused on included the company’s large deals, a strong pipeline, and growing federal contracts. (Zscaler serves 12 of the 15 U.S. cabinet-level agencies.)  

Further, the company continues to invest in AI and sees huge growth potential for its AI-powered features. It provides data protection capabilities to prevent the leakage of sensitive data through generative AI.  

Overall, the analyst reiterated a buy rating on ZS stock with a price target of $195, saying, “Investments in AI, Cloud and go-to-market are set to accelerate growth.”

Eyal holds the 9th position among more than 8,500 analysts tracked on TipRanks. In all, 70% of his ratings have been profitable, with each generating an average return of 25.5%. (See Zscaler’s Financial Statements on TipRanks)

CrowdStrike Holdings

Another cybersecurity stock in this week’s list is CrowdStrike (CRWD), which recently reported upbeat fiscal second-quarter results and issued solid guidance.

In reaction to the impressive performance, Needham analyst Alex Henderson raised his price target for CRWD stock to $200 from $170 and reiterated a buy rating on the stock. The analyst noted that the company achieved strong growth in new products under its Identity, Cloud, and LogScale Security Information and Event Management (SIEM) offerings.

The analyst also highlighted management’s commentary about the company’s generative AI cybersecurity product called Charlotte AI, which they believe can immensely improve execution for customers by automating workflows. He added that the use of AI helped the company enhance its own adjusted operating margin, which increased by 472 basis points to 21.3% in the fiscal second quarter.

Henderson called CRWD one of his top recommendations in cybersecurity and said, “Crowd is taking market share with relatively stable pricing and strong new product uptake.”

The analyst also said that the company’s managed services, which are core to the Falcon Complete offering, are enjoying high demand and differentiate the platform from others like Microsoft (MSFT).    

Henderson ranks 162nd among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 58% of the time, with each rating delivering a return of 15.1%, on average. (See CrowdStrike’s Technical Analysis on TipRanks) 

Chipotle Mexican Grill

Next up is Mexican fast food chain Chipotle Mexican Grill (CMG). Baird analyst David Tarantino, who ranks 357 out of more than 8,500 analysts on TipRanks, said that CMG remains his top idea for investors with a 12-month horizon.

The analyst observed that the stock has pulled back since the mixed second-quarter results due to concerns about late Q2 2023 and early Q3 traffic, subdued Q3 restaurant margin outlook, and macro factors. Nevertheless, he feels that this pullback has created an attractive opportunity to buy CMG stock based on multiple positive catalysts that could emerge in the months ahead.

“Specifically, we expect signs of strong same-store traffic momentum and further pricing actions to lead to an upward bias to EPS estimates and support robust valuation metrics on CMG heading into year-end,” said Tarantino.

Additionally, he sees the possibility of CMG accelerating its unit growth to the high end of its target of 8% to 10% annually, supported by the hiring of additional construction managers this year. Tarantino estimates that a combination of about 10% unit growth and mid-single-digit comparable sales could drive low-to-mid teens revenue growth and more than 20% EPS increase, a profile which he believes deserves a premium valuation.

Tarantino reaffirmed a buy rating on CMG stock with a price target of $2,400. His ratings have been successful 62% of the time, with each rating delivering an average return of 10%. (See CMG Hedge Fund Trading Activity on TipRanks).

Lululemon

Athletic apparel retailer Lululemon (LULU) impressed investors with its fiscal second-quarter performance and improved outlook. The company experienced strong momentum in North America and a spike in its international business, mainly due to robust sales in China.

Commenting on the 61% growth in sales from Greater China, Guggenheim analyst Robert Drbul said that he continues to believe that China holds significant growth potential for Lululemon, as the company aims to quadruple international revenues by 2026. He also highlighted that Lulu intends to open a majority of its 35 new international stores, scheduled for this year, in China. 

The analyst raised his Fiscal 2023 and 2024 earnings estimates and believes that demand for the company’s merchandise remains strong, as competitive pressures from upcoming athletic brands seem overestimated.  

Drbul maintained a buy rating on LULU and a price target of $440, justifying that the company “stands to benefit from favorable secular tailwinds (health, wellness, casualization, and fitness, including at-home).”

Drbul ranks No. 958 out of more than 8,500 analysts tracked on TipRanks. Additionally, 57% of his ratings have been profitable with an average return of 5%. (See Lululemon Insider Trading Activity on TipRanks)

Acushnet Holdings

The last stock on this week’s list is Acushnet Holdings (GOLF), a manufacturer of golf products. Tigress Financial analyst Ivan Feinseth believes that the company is well-positioned to benefit from the ongoing growth in golf, driven by product launches and biannual new golf ball design introductions.

The analyst highlighted that GOLF’s strong brand name continues to be a growth catalyst, as its Titleist brand golf balls remain the preferred choice of PGA and LPGA Tour players. He also noted the strong growth in Titleist golf clubs, Titleist gear, and FootJoy golf wear segments, fueled by a wide range of innovative launches, including new TSR models that rapidly emerged as the most-played model on the PGA tour.

Feinseth increased his price target for GOLF to $68 from $62 and reiterated a buy rating, while emphasizing that the company is enhancing shareholder returns through ongoing dividend increases and share repurchases.

“GOLF’s incredible brand equity, driven by its best-in-class and industry-leading product lines, including FootJoy and Titleist, are major assets and the primary drivers of its premium market valuation,” said Feinseth.  

Feinseth holds the 289th position among more than 8,500 analysts tracked on TipRanks. His ratings have been profitable 58% of the time, with each rating delivering an average return of 10.9%. (See Acushnet Stock Chart on TipRanks)

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Lululemon shares surge after reporting 24% sales growth, raising full-year guidance

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Lululemon reported earnings that beat Wall Street’s estimates on the top and bottom lines Thursday and raised its full-year guidance, bolstered by improvements in China and freight costs.

Shares of the company surged more than 12% in extended trading.

Here’s how the retailer did in its fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts compiled by Refinitiv:

  • Earnings per share: $2.28 vs. $1.98 expected
  • Revenue: $2 billion vs. $1.93 billion expected

The company’s reported net income for the three-month period that ended April 30 was $290.4 million, or $2.28 per share, compared with $190 million, or $1.48 per share, a year earlier. 

Sales rose 24% to $2 billion, up from $1.61 billion a year earlier.

China revenue alone grew 79% from the year-ago period, when the country was still reeling from Covid restrictions and roughly one-third of Lululemon’s 71 China stores were closed for a period of time.

“Our Q1 results were strong as guests responded well to our product offering in all our markets across the globe. A meaningful acceleration in our China sales trend, coupled with lower air freight, contributed to our better than planned financial performance,” finance chief Meghan Frank said in a statement. “We are pleased with our momentum heading into the second quarter and for the full year as reflected in our revised outlook for FY23.”

The retailer now expects to see full-year revenue of $9.44 billion to $9.51 billion, up from a previous range of $9.31 billion and $9.41 billion, and beating Wall Street’s projections of $9.37 billion, according to Refinitiv. It expects full-year profit of $11.74 to $11.94 per share, compared with a prior range of $11.50 to $11.72. That also topped analysts’ expectations, which called for $11.61 per share, according to Refinitiv. 

Lululemon is expecting second-quarter sales to be in the range of $2.14 billion to $2.17 billion, representing growth of about 15%. Lululemon expects diluted earnings per share to be in the range of $2.47 to $2.52 for the period. That second-quarter guidance was largely in line with Wall Street expectations, according to Refinitiv.

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Lululemon shares surge in extended trading after a strong quarterly report.

The apparel retailer, which sells high-end yoga pants, shoes and other athletic wear, saw a 24% year-over-year increase in sales, even as it lapped strong comparisons in the year-ago period, which came during an easier macroeconomic backdrop.

This time last year, Lululemon had just raised its prices, but shoppers were still flocking to its stores and filling up their digital carts. And they weren’t yet feeling the pressure of persistent inflation.

Total comparable sales, which tracks digital revenue and sales at stores open for at least 12 months, were up 14% in the quarter, which fell short of estimates of 15.1%, according to StreetAccount.

While comparable store sales outperformed expectations in the most recent quarter — jumping 13%, compared with StreetAccount estimates of 8.3% growth — direct-to-consumer revenue fell short of projections, increasing 16% from the prior-year period, compared with the 22.3% jump analysts had expected, according to StreetAccount.

While DTC revenue increased compared to last year, it represented 42% of total sales, compared to 45% in the year-ago period.

Gross margins in the quarter increased 3.6 percentage points to 57.5%, driven by a reduction in airfreight expenses. That was above the 56.7% analysts had been expecting, according to StreetAccount.

By category, women’s sales increased 22%, men’s gained 17% and accessories were up 67%.

Inventory, which has been an ongoing issue for Lululemon, was up 24% at $1.58 billion at the end of the quarter and is expected to be up 20% in the next quarter. During an earnings call, company executives insisted its inventories are in line with sales growth and said they’re “comfortable” with its position.

Still, they acknowledged Lululemon has work to do.

“We will still have opportunities … to get our inventory [turnover rates] back to historical levels. We have seen some material improvements in supply chain and lead times but not all the way back to historical positioning,” said Frank during the earnings call. “So, too soon to say when we’ll move back to those levels, but that would be the goal over the longer term.”

The company expects to open 50 net new company-operated stores in the fiscal year. Thirty to 35 of them will be in international markets, with the majority planned for China.

Discretionary spending

While the company largely caters to higher-income consumers who tend to fare better against macroeconomic pressure, retailers across the industry have cited a pullback in discretionary spending and higher-ticket items. 

During Nordstrom’s earnings call Wednesday evening, executives noted the high-end customer is “pretty resilient,” but they’ve also become more cautious.

Meanwhile, Lululemon said it has seen no changes in its customers’ shopping habits.

“In terms of our guests’ metrics, they’ve remained very strong. We’ve seen no change in our cohort behavior, in terms of frequency of purchase or engagement,” said CEO Calvin McDonald. “In addition, in quarter one, transactions by existing guests increased 22% and our transactions by new guests increased 28%.”

During the current earnings season, some analysts cautioned soft goods retailers, or those that sell items such as clothes and shoes, could see a drop in margins because of increased promotional activity and an overall pullback across the sector. 

The results on that front have been mixed so far.

Many retailers have benefited from supply chain tail winds, such as reduced freight costs, that have boosted their margins. But for some, a lot of those savings evaporated because of increased promotions and upticks in shrink, among other headwinds.

That rang true for Foot Locker, but others in the category, including Gap and Urban Outfitters, were able to hold the line on promotions and saw the benefits to their margins. 

Connected fitness

Last month, CNBC reported Lululemon is looking to sell its at-home fitness business Mirror and has approached competitor Hydrow as a potential buyer.

The company announced it would acquire Mirror for $500 million at the height of the at-home fitness bonanza in June 2020 in a bet that people would continue to exercise at home, even after Covid pandemic restrictions ended and gyms reopened. 

The segment has since rebranded as Lululemon Studio but it has been weighing on its balance sheet. 

During its previous fiscal quarter, the company said it took $443 million in impairment charges related to Mirror and told investors hardware sales have come in below expectations. 

Lululemon acknowledged the at-home fitness market has been under pressure.

Similar to Peloton, Lululemon has begun pivoting the segment away from being solely hardware-focused.

Recently, the company launched a new digital app for Lululemon Studio, which costs the same as Peloton’s starting membership at $12.99 a month and gives customers access to its fitness classes without the need to buy its hardware.

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