Margin Upside Ahead For Lululemon

• Jefferies reiterated a Buy rating and $71.00 price target on shares of Lululemon Athletica inc. LULU on Monday.
• The firm’s proprietary analysis showed that the company has the ability to take prices up on tops.
• This implies there is margin upside ahead.

Jefferies' analysis of the competitive landscape has shown that despite the surging competition, Lululemon's "offering of highly fashionable and highly technical product at mid-tier pricing" provides it with a unique position within the industry.

In fact, the firm's pricing research has suggested that the company can boost tanks and bras prices. The analysts have estimated that this could result in ~170 basis points of gross margin expansion (about $0.40 in earnings per share) by fiscal 2018, providing cushion to their already above-consensus forecasts.

Further supporting this view is the raise in some prices seen in September 2015, which did not have a substantial impact on sales. "In fact, correlation work around Google Search Interest suggests same-store sales are accelerating," the report concluded.

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