Lululemon stock surges on strong holiday sales

Yahoo Finance Live’s Seana discusses the surge in stock for Lululemon.

Video transcript

BRAD SMITH: And switching gears here, shares of Lululemon, they're surging today after the retailer posted strong holiday sales figures showing strong demand despite rising prices. Yahoo Finance's Seana Smith joins us now with a breakdown. Seana.

SEANA SMITH: Hey there, guys. Well, there are a number of retailers on the move today. We had UBS downgrading a number of stocks, but let's start with Lululemon because of the outperformance that we're seeing in this name. It's a top trending ticker on Yahoo Finance right now. Another very strong report here from the company. You can see right here, beating on both the top and the bottom line really, showing that demand for athleisure is still intact.

Now, a few standout numbers-- 39% gain in digital, guidance also very strong. Lulu forecasting an 18% sales growth for the current quarter, 15% growth for the year, both ahead of consensus. Now Barclays analyst Adrienne Yih telling me that her quarter to date checks showing that Lulu is, quote, "off to a strong start," so really reiterating some of the guidance that we got here from the company. Some improvement also on inventory levels. We know this has been a massive challenge for Lululemon and a lot of its competitors. Still up more than 50% from a year ago, but coming in better than what the Street was looking for.

Let's talk now about Mirror. Now Lulu, it seems to be pivoting away here from the business, absorbing that $442 million charge. So it won't be taking up much more, I should say, of management or capital resources. Now, CFO Megan Frank acknowledging on the call the misstep here, last night saying that the at-home fitness base has been very challenging. The hardware sales have not matched expectations. Remember, Lulu bought Mirror for $500 million in June 2020.

So what's Lulu doing with its digital business, its digital content? Well, they've announced a new two-tier app-based model that's launching this summer at a lower monthly rate. In terms of the Street's reaction, Wells Fargo thinking that the pivot could help Lulu expand its total addressable market, although, obviously, likely to be a very small contributor to the retail sales. And guys, remember, Lulu has his goal of doubling its 2021 revenue by 2026. They want to do that to 12.6 billion. We'll see whether or not they get there.

JULIE HYMAN: I've been helping them.

SEANA SMITH: So have I. I know. It's so addicting. You go in the store to get one thing, I always come out with more every time.

JULIE HYMAN: Yes. Also, as I mentioned earlier, there's a UBS call out on retail that is quite interesting today.

SEANA SMITH: Yeah, it is interesting. It's also interesting when you take a look at the reaction, or lack thereof, I guess we should say, that we're seeing in some of these names. Now we initially saw Foot Locker, one of those names, under pressure. Had been off just about 2% right at the open, but regaining some of those losses. Urban Outfitters, Ross Stores also among the names that analyst Jay Sole downgraded to a sell here. Why? Well, he's saying that he's turning increasingly bearish here on some of these clothing and footwear names.

When it comes to why he's making this case, well, he's saying that some of the checks and some of the data that he's been looking at from UBS in terms of consumer spending, well, they have started to fall off a little bit. And he does not see these names outperforming in a recession. So lots of worry, guys, here on what exactly the future holds for some of these retailer names.

We heard from Foot Locker CEO Mary Dillon earlier this week on Yahoo Finance. Brian Sozzi spoke to her. She was, obviously, to no surprise, very bullish about Foot Locker's future here, talking a lot about the renewal of the brand and that renewed partnership that the company has with Nike. But at least when it comes to Jay Sole, the analyst there at UBS, he thinks that turnaround might take some time, given the macroeconomic environment.

JULIE HYMAN: I always love that his name is Jay Sole.

SEANA SMITH: It makes so much sense. He had to cover some of these footwear names.

BRAD SMITH: Sneakers? Yeah, for sure.

JULIE HYMAN: Yeah, exactly. He was born for the job.

SEANA SMITH: He was. He was. And he followed through.

JULIE HYMAN: Yeah.

BRAD SMITH: Thanks so much. Seana Smith. You can get Seana on the 3:00 to 5:00, wrapping up all of the market activity here on the day and thereafter. Thanks so much, Seana.