Lululemon (LULU) Outlook as Shares Drop 10% on Margin Squeeze

The once-adored athletic clothing retailer, Lululemon Athletica Inc., is now sweating after witnessing its sharp stock decline along with the major indices in 2022. The company’s shares took a further hit, down 10% on the January 9 open, as the company said it also expects its holiday margins to decline, citing rising costs and lower consumer spending.

Despite the squeezed margins, Lululemon expects revenue and earnings per share (EPS) for the fourth quarter to be roughly in line with prior estimates:

• Revenue: $2.66 to $2.7 billion versus prior estimate of $2.61 to $2.66 billion.
• Dilute EPS: $4.22 to $4.27 versus prior estimate of $4.20 to $4.30.

In other words, Lululemon anticipates slightly higher revenue for the fourth quarter — the announcement of which is expected on March 23, 2023 — but slightly lower EPS due to squeezed margins. The stock rallied aggressively off the COVID pandemic lows in 2020, but since then has been mired in sideways price action.

However, the large price swings still present chances for investors. An analyst from SafeTradeBinaryOptions.com commented: “Longer-term, LULU is stuck moving sideways, but that doesn’t mean there isn’t opportunity.

Since June, the price has been edging higher within a rising channel. The 10% drop on the squeezed-margin news has brought the price right to the bottom of that channel and potential support.”

“Purchasing near the $295 to $300 mark with a stop loss below $289 provides a relatively low risk trade with a lot of upside into the $400 region, which is near the top of the channel. There are no assurances that the price will march higher off the trendline, but the small risk relative to the reward is compelling.”

Below is the rising channel, where it is evident prices have risen quite sharply after the channel low in the past. The low in late September that touched the lower trendline was also a gap down very similar to what the stock is experiencing right now.

The flip side of the scenario is the possibility of the price breaking below the channel and drifting lower; however, ultimately the price has been moving sideways for a long time. There is support not far below at $280, $260, and $250, providing convenient entry points for longer-term investors.

Due to Boxing Day sales and this recent margin statement, LULU is trending as a search term on Google, with interest near a one-year high.

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Original article: Lululemon (LULU) Outlook as Shares Drop 10% on Margin Squeeze

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