Lululemon Has Momentum, MKM Says

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  • MKM Partners and Wendy Farina recently conducted an inaugural study of Lululemon Athletica inc. LULU shoppers. The results support MKM’s view that the company has sales momentum.
  • Consequently, analyst Roxanne Meyer reiterated a Buy rating and $69.00 12-month price target on the stock.
  • Shares of Lululemon are down more than 2 percent on Thursday trading.

According to a report issued Thursday, MKM’s Buy thesis on Lululemon is based on its view (above the Street’s consensus) that the company will deliver 24 percent EPS growth over the next five years “from low-double-digit total comps and a cumulative 200 bp of margin growth, led by supply chain.”

The controversy regarding this company stems on its margins. However, the experts note, investors should view potential for comp variance just as meaningful.

While the Street’s forecasts are for an MSD-HSD total comp, MKM analysts assume that “store comps will continue to accelerate as the company delivers on innovation, and that DTC growth” (which has surged at a compounded annual rate of 48 percent for the past five years) could see further inflection in the second half of 2016 under Miguel Almeida, the Executive Vice President of the Digital division. In fact, the firm models that each comp point above a +HSD comp (its fixed cost leverage point) adds $0.03 to $0.04 per share to 2016 earnings.

The Inaugural Study

The firm’s proprietary study, which evaluated customers’ opinion, awareness and purchase history and intentions, suggested continued momentum from both women and men segments. However, men’s momentum was stronger, and the experts believe the strong double-digit comps seen in this category are likely to continue.

In addition, a comp uptick should be supported by the customers’ “favorable view of new merchandise and purchase intentions,” the analyst concludes.

 

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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Posted In: Analyst ColorLong IdeasPrice TargetReiterationAnalyst RatingsMoversTrading IdeasApparel, Accessories & Luxury GoodsConsumer DiscretionaryMKM PartnersWendy Farina
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