Lululemon Athletica inc. LULU shares opened sharply higher Friday on both an apparent short squeeze and investor enthusiasm for better-than-expected second-quarter results.
But better than expected for Vancouver-based Lululemon, meant flat same-store sales that left a number of analysts insufficiently impressed to boost their ratings.
"Worst-case scenarios" for Lululemon recently contemplated by investors now appear "overly pessimistic," said D.A. Davidson's Andrew Burns, noting the company now expects comparable sales growth "in the low single digits."
But spending on international expansion as well as growing competition will limit 2015 earnings growth, according to Burns, who maintained a Neutral rating and $43.73 target on the company.
The upcoming holiday sales season promises to offer "an extremely competitive environment" for women's athletic wear, according to Deutsche Bank's David Weiner, who said the company's weak revenue and its "currently sub-optimal product assortment" amounts to a less-than-compelling investment.
Weiner maintained a Hold rating but boosted his target to $40 from $35.
J.P. Morgan's Brian Tunick acknowledged Lululemon's improved outlook and better-than-expected performance. "But their not off the mat yet," Tunick said, maintaining a Neutral rating and $43.73 target.
While the business should slowly improve, "we're not holding our breath" for margins to recover, Morgan Stanley's Kimberly Greenberger said, citing competitive pricing pressure.
Moreover, Lululemon loyalist shoppers "likely own all the core bottoms they need" and new shoppers may go with competitors' products, Greenburg said.
Greenberger maintained an Equal Weight rating on the company and established a $39 target.
Lululemon traded recently at $52.46, up 3.5 percent
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