Lululemon Athletica inc. LULU reported fourth-quarter results Tuesday that not only marked its best quarterly comp and flow-through in five years, but satisfied a necessary condition for continued growth, according to Morgan Stanley.
The Analyst
Morgan Stanley's Kimberly Greenberger maintains an Equal-weight rating on Lululemon Athletica's stock with a price target lifted from $73 to $82.
The Thesis
Lululemon's Q4 report made it clear that it ended 2017 with momentum that should be sustainable through at least the first quarter, Greenberger said in a research report. The analyst highlighted the following:
- "Significant" growth in online sales.
- Slightly positive store traffic in all regions.
- Strength in multiple categories.
Perhaps more important to Lululemon's story is the company's guidance for SG&A leverage, which hasn't been seen since 2012, Greenberger said. SG&A leverage guidance is a "necessity" for not only the EPS algorithm, but to support the stock's 25x calendar 2019 P/E multiple, the analyst said.
Lululemon indicated it needs only a low- to mid-teens total sales growth figure to lever SG&A, which could be realistic as the company laps a onetime digital acceleration cost from 2017, according to Morgan Stanley. But the company will also realize more efficiencies in its cost structure, as was seen in Q4, when Lululemon realized a 60-basis-point leverage due to more efficient spend in the home office and store channel.
Greenberger said she expects a 30-basis-point SG&A leverage in 2018; 2019 should offer a "more normalized test" for management's ability to leverage SG&A over the longer term, the analyst said.
Price Action
Shares of Lululemon Athletica were trading lower by 0.47 percent at the time of publication Monday.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
date | ticker | name | Price Target | Upside/Downside | Recommendation | Firm |
---|
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.