Credit Suisse Bullish On Lululemon With A $76 Price Target
Lululemon Athletica inc. (NASDAQ: LULU) reported strong Q2 results, reflecting steady demand amidst a choppy environment, Credit Suisse’s Christian Buss said in a report. He reiterated an Outperform rating on the company, with a price target of $76.
Lululemon has been witnessing healthy demand, while the company capitalizes on the current athletic trend and increases its product offerings to “continue to recapture lapsed consumers,” analyst Buss mentioned. He added, however, that with traffic trends continuing to be choppy, the mid-single-digit comp guidance seems appropriate.
Buss reduced the Q3 and FY16 y/y comp estimates from 6.1 percent to 5.5 percent and from 6.6 percent to 6.2 percent.
Gross Margin Upside
Lululemon’s gross margin improved 260bp y/y, significantly higher than the guidance of 120bp. This also represented the first quarter since 1Q14 in which the company achieved y/y margin expansion, the analyst noted.
The Q3 estimate for y/y gross margin expansion has been raised from 144bp to 250bp. The FY16 gross margin estimate has been raised from 49.7 percent to 50.1 percent.
Buss stated that the forecasts now reflected:
- Steady demand trends amidst a choppy retail environment
- Higher-than-expected gross margin benefits from supply chain restructuring
- More moderate SG&A deleverage in 2H from increased investments
- Tighter inventory control, with inventory growth below expected sales growth
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Latest Ratings for LULU
|Dec 2016||Bank of America||Upgrades||Underperform||Neutral|
|Dec 2016||Evercore ISI Group||Upgrades||Sell||Buy|
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