Dollarama (TSX:DOL) & Lululemon: Why are the consumer stocks trending?

Highlights

• Lululemon (NASDAQ:LULU, LULU:US) and Dollarama (TSX:DOL) have been trending on the stock markets amid some latest developments.
• With omicron cases being on the rise, many companies are facing operational challenges.
• While the demand for certain consumer products, especially those dealing with daily needs, are surging, others are taking a beating.

Lululemon Athletica Inc (NASDAQ:LULU, LULU:US) and Dollarama (TSX:DOL) have been trending on the stock markets amid some developments.

With omicron cases being on the rise, many companies are facing operational challenges. While the demand for certain consumer products, especially those dealing with daily needs, are surging, others are taking a beating.

Amid the decline in the price of certain consumer stocks, some investors are also exploring the option of buying the dip.

Let us find out why these two consumer stocks are trending.

Lululemon Athletica Inc (NASDAQ:LULU, LULU:US)

Lululemon is said to have entered the holiday season with a robust position, but the emergence of the omicron variant led to it facing some serious operational challenges.

On Monday, January 10, the US-Canadian athletic apparel retailer said that it is lowering its net top line expectation to somewhere between US$ 2.12 and US$ 2.16 billion for Q4 FY2021. It also lowered its diluted earnings per share expectation to between US$ 3.24 and US$ 3.31 billion for the same quarter. 

Also read: How can Canadians invest in international stocks?

Lululemon shares, consequently, closed at US$ 348.43 apiece on Monday, a decline of nearly two per cent.

The retail stock has struggled in the past year, with a nine-month return of roughly eight per cent. 

In Q3 FY2021, Lululemon saw its revenue surge by 30 per cent year-over-year (YoY) to US$ 1.5 billion. Its diluted earnings per share amounted to US$ 1.44 in that quarter, up from US$ 1.1 a year ago.

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Dollarama (TSX:DOL)

The grocery retailer is currently one of the top consumer stocks on the TSX, ranking high among price performers and return on equity (ROE) leaders as well.

Dollarama, on December 22 last year, inked an agreement with Montreal-based Stingray Group Inc (TSX:RAY.A, RAY.B) to produce and stream digital advertisements within the Dollarama stores.

The owner of discount and dollar stores saw a sales growth of 5.5 per cent YoY to C$ 1.12 billion in Q3 FY2021. The retailer opened 16 new stores in the latest quarter, pushing its count of total stores to 1,397, as compared to 1,333 stores a year ago.

Dollarama shares closed at C$ 61.8 apiece on Monday, down by over two per cent in the past week.

Also read: 5 best TSX value stocks to buy in 2022 

Bottom line

Rising omicron cases are likely to impact consumer shopping patterns, which can in turn affect retail businesses. Hence, investors should ideally be cautious about the market changes and dynamics that can significantly impact the retail space before investing.