RBC Raises Target On Lululemon By $5 To $80

RBC Capital Markets analysts boosted their price objective on Lululemon Atheletica inc. LULU to $80 from $75. The move comes a day after the company's results topped expectations. The analysts retained Outperform rating on the stock.

The brokerage thinks Lululemon's 8 percent comp, gross margin beat, and aligned inventory impress came in despite a challenged retail backdrop.

The analysts said, "While lulu saw 2H-1Q16 traffic slowdown, the est. +MSD-HSD March/April comp points to a 2-YR stack acceleration on LY's +LDD March/ April trend. By category, men's comped +21%, with women's est. +5% led by DD bottoms gains and a positive tops comps."

The analysts said first quarter gross margin beat, the 40 basis points gain in product margins included a 50-bps markdown hit. Analysts noted Lululemon's GM recovery off last year's trough 48 percent hinges on greater organization and planning.

The brokerage pointed out the biggest buckets. The first one is enhanced sourcing and reduced FOB from reduced order cancellations/changes or fabric liabilities while the second related to enhanced logistics and reduced airfreight. The third is trade efficiencies. The analysts said, "Our model assumes +120-bps (as per guidance), +240-bps, and +220-bps from 2Q-4Q16."

The stock traded 0.90 percent higher on Thursday.