Lululemon Bears 'Running Out Of Arguments,' Barclays Says

In a report published Wednesday, Barclays analyst Matthew McClintock maintained an Overweight rating and price target of $85 on

. The analyst believes that the 1Q15 outperformance is likely to push investors to "re-evaluate their thesis" on the stock. "A major bear thesis on the stock following 4Q14 results was that comp store sales were only strong because of easier comparisons, as the two-year stack comp trend decelerated that quarter. Should the company reach its HSD comp guidance for 2Q15, the two-year stack trend will stabilize, if not improve, making it much more difficult to support bear stories," McClintock stated. Some of the bear theories were that competition had been hurting the company, that its price points were too aggressive, the brand was damaged, the product was unsatisfactory, and so on. However, Lululemon reported its first project margin improvement since 4Q12. The analyst, therefore, believes that the quarter marked a major inflection point for the company's margins, while increasing confidence that its total longer-term gross margin could return to the low to mid 50s range. According to the Barclays report, "[A]s comp store sales accelerate, we expect SG&A leverage to reappear as a potential margin theme for the company and drive further acceleration in EPS growth. Bears remain convinced that LULU cannot recover margin lost over the last few years but this quarter provides the first glimpse of optimism that the company can do just that."