Performance guidance is not working! Lululemon's stock price is down? (2024.03.27)

Hello everyone, this week's technical analysis is about Lululemon, a well-known Canadian sportswear brand known as the "pioneer of yoga pants".$Lululemon Athletica (LULU.US)$.

Hot events

The performance guidance fell short of expectations, and Lululemon's stock price plummeted by 16%.

Lululemon released its Q4 earnings report on Friday, March 22. Although the profit was better than market expectations, the sales growth in the North American market slowed down, causing concerns among investors. Data showed that the Q4 revenue growth in the North American market was only 9%, far below the 29% of the same period last year.

North America is Lululemon's major market, with the US market alone contributing two-thirds of its revenue, which is of great significance. However, investors felt a chill from Lululemon CEO Calvin McDonald's earnings conference call. According to McDonald, "recent changes in consumer behavior in the US market have led to slow sales momentum since the beginning of the year."

Due to the lackluster performance in the North American market, Lululemon's Q1 revenue guidance fell short of market expectations. The company expects Q1 revenue to be between $2.18-2.2 billion, with a year-on-year growth of 9%-10%. In comparison, Wall Street analysts predicted Q1 revenue to be $2.25 billion, with a year-on-year growth of 12.5%.

As the "pioneer of yoga pants", Lululemon sells not only products, but also promotes the lifestyle and spirit of yoga, exercise, and health. It has established a differentiated brand image from the beginning. However, with the emergence of more competitors, Lululemon's market share is being eroded, and the company must make more efforts to maintain its leading position. On the other hand, Lululemon's products belong to the non-essential consumer category and are easily influenced by consumer tightening of expenses, leading to greater uncertainty.

The good news is that Lululemon's international expansion is progressing steadily. Data shows that the company's Q4 international sales increased by 54% year-on-year, and in the potentially promising Chinese market, sales increased by 78% compared to the same period.

In terms of ratings, Barclays announced on Monday (March 25) that it lowered Lululemon's target price from $610 to $546 and maintained a 'buy' rating.

Technical analysis

Entering 2024, Lululemon has been on a downward trend, in stark contrast to the performance of the US stock market. As of March 27, Lululemon's stock price has fallen by 24% year-to-date, while the S&P 500 Index has risen by 10% during the same period.

Trend analysis:

1. Lululemon started an upward trend in October of last year, and by the end of the year, the increase exceeded 40%.

2. Entering 2024, the stock price began to decline, and in the following two months or so, the decline did not exceed 50%.

3. Prior to the release of Q4 earnings reports, the stock price experienced a false breakout, indicating that the market may be betting on the earnings report and trying to take advantage of the rebound in advance.

4. However, the market's expectations were dashed, and Lululemon Athletica's stock price plummeted by 16% after the earnings report, forming a huge gap, leading the market into another downward trend.

Indicator interpretation:

The post-earnings plunge caused Lululemon Athletica to break below the 200-day moving average (MA200), an important medium- to long-term bull-bear watershed. Prior to this, Lululemon Athletica had maintained its position above the 200-day moving average for nine consecutive months. This may indicate that Lululemon Athletica may not be as strong as before in the near future. However, in the short term, with the gradual release of market selling pressure, there are signs that the stock price may attempt to stabilize and rebound near $386.

On the 4-hour chart, technical indicators such as RSI and KDJ show oversold conditions, indicating a short-term rebound in stock prices. In addition, the MACD indicator has also shown a golden cross signal. Overall, the short-term technical signals are relatively positive.

Focus direction:

According to the general gap theory, the huge gap on the daily chart of Lululemon Athletica after the earnings report is a "breakaway gap", with a lower likelihood of short-term filling, which may limit the potential rebound space for the stock price. If $386 can become effective support, attention is needed on the potential resistance of the 200-day moving average above.

This content discusses technical analysis. Other methods, including fundamental analysis, may provide different perspectives. The examples provided are for illustrative purposes only and do not reflect expected results.

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