Ahead of the market open, Lululemon’s share price is up by 0.46% at $193.62. The athleisure giant is scheduled to release its earnings report later today. Like other retailers, the coronavirus pandemic has forced it to close many of its stores. But why are investors bullish for Lululemon’s share price?
Most of it has to do with one of Lululemon’s largest competitors: Nike. On Tuesday, Nike reported a revenue of $10.1 million for its fiscal third quarter. This translates to a 5% increase from a year ago and topped forecasts by $530 million. Adjusted earnings per share came in at $0.78, higher than estimates by $0.22. Following this, the Nike share price rose by over 10%.
The company’s report showed that while its sales in China slumped by 5%, other regions picked up the slack. It was also noteworthy that digital sales rose by 36%. Even in China which was already in lockdown, online sales was up by 30%.
Because Lululemon also has a digital platform, some analysts think that it may be enough to pad the company’s earnings. According to Zacks Investment Research, Q4 2019 sales is expected to come in at $1.38 billion. Meanwhile, the adjusted share price earning is seen at $2.25.
Read our Best Trading Ideas for 2020.
On the monthly time frame, it can be seen that Lululemon share price tested support at the long-term rising trend line (from connecting the lows of March 2009 and June 2017.
A closer look at the weekly chart would also show that a spinning top candlestick has formed. On its own, this candlestick indicates a neutral bias from the market. However, because it materialized on the rising trend line and between the SMAs, it could hint that Lululemon share price has hit a bottom. If the earnings report does impress, we could see a rally to recent highs at $255.27On the other hand, it’s worth pointing out that the daily chart reveals a potential confluence of resistance around $213.00. This price coincides with the SMAs on the daily timeframe. On top of that, it aligns with the area between the 50% and 61.8% Fib levels (when you draw from the high of February 21 to the low of March 18). Should the company’s earnings report disappoint, we could see Lululemon’s share price get rejected at this level and fall to trend line support around $139.00.