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lululemon (LULU) & Peloton Ink Digital Content Partnership

lululemon athletica LULU has inked a five-year strategic global partnership with Peloton. As part of this deal, lululemon will serve as Peloton’s primary athletic apparel partner while the latter will become the exclusive digital fitness content provider for LULU. Also, a few Peloton Instructors will become lululemon ambassadors.

This collaboration is likely to expand brand awareness and customer base for both companies. With this deal, lululemon Studio Members will gain access to Peloton’s offering of fitness content.

lululemon’s product lines will be available for purchase at Peloton retail stores and online at in the United States, U.K., and Canada from Oct 11, as well as across all five of Peloton’s global markets by March 2024.

From Nov 1, 2023, lululemon Studio All-Access members can join Peloton classes for the same price they pay today. The Studio device will contain weekly updated Peloton content. Also, exclusive Peloton content will be available for those who sign up for lululemon’s free Essential membership program. This program boasts more than 13 million members.

In another development, lululemon revealed plans to discontinue selling the lululemon Studio Mirror by the end of the year. However, it will continue to provide ongoing service and support for Mirror devices. The company also intends to discontinue its digital app-only membership on Nov 1, 2023. Thus, current lululemon Studio app-only members will have the opportunity to become a Peloton App One Member.

The aforementioned deal is in sync with lululemon’s accelerated e-commerce investments to ensure a robust shopping experience. It has been investing in developing sites, building transactional omni functionality and increasing fulfillment capabilities. The company continues to strengthen omni-channel capabilities, such as curbside pickups, same-day deliveries and BOPUS (buy online pick up in store). It is enhancing its mobile app in a bid to offer a curbside pickup facility.

This led to direct-to-consumer revenue growth of 15% (up 17% on a constant-dollar basis) in the second quarter of fiscal 2023. In the digital channel, revenues accounted for 40% of the company’s net revenues. E-commerce traffic also improved more than 20% in the fiscal second quarter.

Backed by the momentum in its business and innovative product pipeline, lululemon expects a robust view for the fiscal third quarter and fiscal 2023. We estimate the company’s net revenues for fiscal 2023 to reflect growth of 17.7% to $9,546.9 million, which is in sync with the company’s guidance of $9.51-$9.57 billion. The company’s view indicates year-over-year growth of 17-18% and exceeds the revenue target per the Power of Three x2 growth plan. lululemon anticipates EPS of $12.02-$12.17 for fiscal 2023. We anticipate adjusted EPS to be $12.02 for fiscal 2023, implying 19.4% growth year over year. lululemon expects an effective tax rate of 30% for fiscal 2023.

For the third quarter of fiscal 2023, we estimate net revenues of $2,175.8 million, which is expected to meet management’s net revenue guidance of $2.165-$2.19 billion. The company’s guidance indicates 17-18% year-over-year growth compared with our estimate suggesting growth of 17.2% year over year. We expect fiscal third quarter adjusted EPS to be $2.25, which is within its guided range of $2.23-$2.28. It estimates an effective tax rate of 30.5% for the fiscal third quarter.

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Zacks Investment Research

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Consequently, shares of this Zacks Rank #3 (Hold) company have gained 2.4% in the past three months against the industry’s decline of 5.1%.

Stocks to Consider

Some better-ranked companies are MGM Resorts MGM, Royal Caribbean RCL and Crocs CROX.

MGM Resorts currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 81%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MGM’s 2024 sales and EPS indicates year-over-year increases of 2.2% and 31%, respectively.  

Royal Caribbean sports a Zacks Rank #1 at present. RCL has a trailing four-quarter earnings surprise of 26.4%, on average.

The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates increases of 47.9% and 158.3%, respectively, from the year-ago period’s reported levels.

Crocs, which offers casual lifestyle footwear and accessories, presently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 15%.

The Zacks Consensus Estimate for Crocs’ current financial-year sales and earnings suggests growth of 13.1% and 2.8%, respectively, from the year-ago period’s reported figure. CROX has a trailing four-quarter earnings surprise of 21.8%, on average.

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