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Lululemon Earnings Outlook: Can Options Bulls Capitalize on Q3 Numbers?

By:Thomas Westwater

Analysts have grown a bit more bullish on the stock over the past several weeks amid high expectations for a strong holiday shopping season

  • LULU is scheduled to report Q3 earnings on Thursday.
  • Observers expect EPS of $2.29 on $2.19 billion in revenue.
  • LULU’s 53.4 IVR gives options sellers some choices.

Lululemon Athletica (LULU) is slated to report fiscal third-quarter earnings on Thursday after market close. Analysts have grown slightly more bullish on the stock over the past several weeks amid brightening expectations for a strong holiday shopping season. Can LULU stock repeat recent performance beats?

While investors will be keen to hear executives’ guidance going into the holiday season, the third-quarter numbers are also in the spotlight. According to Bloomberg, investors expect adjusted earnings per share (EPS) to cross the wires at $2.286 on $2.19 billion in revenue.

That would put revenue growth at 18% from a year ago, and adjusted EPS would rise nearly 15% if LULU meet expectations. Investors are also looking for same-store sales growth of about 13.5%, which would constitute a 4% decline from a year ago.

Dealing with expense

The company’s ability to manage costs amid higher interest rates and a more challenging consumer landscape is also in focus, with adjusted net income and operating profit expected to come across at $290.26 million and $411.81 million, respectively.

Inventory management is another crucial factor that investors are keen on. Will Chinese sales growth continue? What did Black Friday and Cyber Monday sales show? And is early holiday shopping impressive so far? Those questions will likely be asked during the conference call.

Trading LULU

LULU has had quite the performance recently, with the stock price rising nearly 20% from October. Compare that to the S&P 500’s gain of about 7% during the same period, and it’s obvious that investors are excited about the clothing company.

With investors already enthusiastic about the stock, a blowout earnings report may propel LULU even higher. Traders could make a bullish play on earnings by selling premium through a short put vertical spread, given that the implied volatility rank (IVR) is currently 53.1.

An example of that trade would be selling the 440 put and buying the 430 put, which would give you a probability of profit (POP) of 63% with a max profit of 320 and a max loss of 680. And with LULU trading around 457, that trade would allow some downside movement before those strikes move in-the-money.

Lululemon stock

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater 

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