Lululemon stock up 10% on Q4 earnings: sell into the strength?

Lululemon Athletica Inc (NASDAQ: LULU) jumped more than 10% in extended hours after reporting market-beating results for its fourth financial quarter.

Lululemon stock up on strong guidance

The retail stock is trending up also because the athletic apparel company issued strong guidance for the future.

Lululemon is now calling for full-year revenue to full between $9.3 billion and $9.4 billion. In comparison, Street was at $9.1 billion. Reacting to its earnings print on CNBC’s “Closing Bell: Overtime”, Oppenheimer’s Brian Nagel said:

This is an extraordinarily solid report from Lululemon that’s basically saying there’s nothing to worry about. Gross margin pressures I think are transitory in nature. They’ve been clearing that product successfully.

Its current quarter outlook also topped estimates on Tuesday.

Should you buy Lululemon stock?

On the downside, gross margins stood at 55.1% – a 300 basis points decline related to overburdened inventories. Still, Nagel remains bullish on the Nasdaq-listed retailer.

We have a historically low multiple. Lululemon trades at a lower multiple than Nike. Lululemon is a cheap stock. Say, recession doesn’t happen/is mild, we’ll see upside to numbers and that multiple expand.

Inventories were still up 50% versus last year. But that’s a significant improvement versus up 85% in the prior quarter. Lululemon stock is still down nearly 25% versus its record high.

Notable figures in Lululemon Q4 earnings report

Earned $119.8 million versus the year-ago $434.5 million

Per-share earnings also tanked from $3.36 to 94 cents

Adjusted earnings printed at $4.40 as per the press release

Net revenue climbed 30% year-on-year to $2.80 billion

Consensus was $4.26 of EPS (adj) on $2.7 billion revenue

The Oppenheimer analyst sees upside in Lululemon stock to $400 – another 10% increase on top of the after-hours price action.

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