Why Analysts Are Growing More Optimistic on Lululemon

So far, Lululemon Athletica Inc. (NASDAQ: LULU) has been on a tear in 2019, with shares up about 55%. After its fiscal second-quarter financial report late Thursday, it doesn’t seem like the stock will stop anytime soon. Analysts were quick to praise the stock as well.

24/7 Wall St. has included some highlights from the earnings report, as well as what analysts are saying about Lululemon after the fact.

The yoga-wear retailer said that it had $0.96 in earnings per share (EPS) and $883.4 million in revenue, which compared with consensus estimates that called for $0.89 in EPS and $845.65 million in revenue. The same period of last year reportedly had $0.71 in EPS and $723.5 million in revenue.

Overall, revenues increased 22% year over year and 23% on a constant currency basis. Direct to consumer net revenue represented 24.6% of total net revenue, compared to 23.1% last year.

Total comparable sales increased 15% from last year, or up 17% in constant currency. Comparable store sales increased 10%, while direct to consumer net revenue increased 30%.

Looking ahead to the fiscal third quarter, the company expects to see EPS in the range of $0.90 to $0.92 and revenue between $880 million and $890 million. Consensus estimates are calling for $0.90 in EPS and $864.42 million in revenue for the quarter.

Merrill Lynch reiterated a Buy rating and raised its price target to $230 from $200. The brokerage firm said that Lululemon’s key growth drivers remain on track:

(1) direct-to-consumer, which should benefit from investments in data analytics and digital marketing as well as buy-online & pickup-in-store expansion to all stores; (2) 35%+ International growth, led by China (grew 68%) store growth; and (3) product expansion in men’s (grew 27% year over year).

Merrill Lynch added:

Lululemon is guiding for modest operating margin expansion in 2019 while prudently using sales and gross margin upside to invest in its digital platform and brand awareness, which could help sustain top-line growth. We still see additional operating margin opportunity longer term from favorable channel mix & improving international scale.

Credit Suisse reiterated an Outperform rating and raised its price target to $235 from $198. The firm was significantly impressed that Lululemon accelerated same-store sales in an increasingly volatile macro environment in the second quarter. Credit Suisse also thinks that implied fourth-quarter revenue guidance will prove very conservative.

Here’s what a few other analysts had to say:

  • D.A. Davidson reiterated a Neutral rating with a $185 price target.
  • Telsey Advisory Group reiterated its as Outperform and raised its target to $220 from $200.
  • Wedbush reiterated a Neutral rating and raised its price target from $175 to $190.
  • Cowen reiterated an Outperform rating and raised its price target to $214 from $200.

Shares of Lululemon traded up about 8% on Friday to $203.54, in a 52-week range of $110.71 to $203.86. The consensus price target is $195.25.