Understanding Lululemon Athletica’s Newly Added Risk Factors


This article was originally published on TipRanks.com

Canada-based Lululemon Athletica (LULU) is a designer, distributor, and retailer of athletic apparel. It sells its products through physical stores and online.

With this in mind, we used TipRanks to take a look at the latest financial performance and newly added risk factors for Lululemon Athletica. (See Insiders’ Hot Stocks on TipRanks)

Q3 Financial Results

Lululemon reported a 30% year-over-year increase in revenue to $1.5 billion for its Fiscal 2021 third-quarter ended October 31, surpassing the consensus estimate of $1.4 billion. It posted adjusted EPS of $1.62, compared to $1.16 in the same quarter last year, and beat the consensus estimate of $1.41.

Lululemon returned $236.4 million to shareholders through its stock repurchase program during Q3. It ended the quarter with $1 billion in cash and $396.9 million in borrowing capacity under its revolving credit facility. (See Lululemon Athletica stock charts on TipRanks).

Risk Factors

According to the new TipRanks Risk Factors tool, Lululemon’s main risk categories are Production, and Ability to Sell, each accounting for 23% of the total 40 risks identified for the stock. The company recently updated its profile with two new risk factors.

In a newly added Production risk factor, Lululemon informs investors that issues such as labor shortages, trade restrictions, and political instability could harm its ability to distribute its products. Severe weather conditions, terrorism, and financial challenges at key suppliers could also impair Lululemon’s operations. Consequently, the company cautions that these challenges could have a material adverse effect on its financial results.

In a newly added Legal and Regulatory risk factor, Lululemon tells investors that it is subject to complex privacy and data protection regulations. It cautions that failure to comply with these regulations could expose it to fines and lead to class action lawsuits. However, Lululemon warns that its efforts to comply with these regulations may complicate its operations and increase compliance costs. The company goes on to caution that a breach of its privacy protection measures could damage its reputation.

The Production risk factor’s sector average is 17%, compared to Lululemon’s 23%. The Legal and Regulatory risk factor’s sector average is 17%, compared to Lululemon’s 15%. Lululemon’s shares have gained about 18% since the beginning of 2021.

Analysts’ Take

Following Lululemon’s Q3 earnings report, BTIG analyst Camilo Lyon maintained a Buy rating on Lululemon stock and raised the price target to $490 from $473. Lyon’s new price target suggests 19.63% upside potential.

Consensus among analysts is a Strong Buy based on 12 Buys and 4 Holds. The average Lululemon Athletica price target of $475.63 implies 16.13% upside potential to current levels.

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