Lululemon Athletica inc. Could Beat Q2 Views; Outlook Cloudy

Lululemon Athletica inc. LULU shares have seen some recovery in recent weeks, but whether fiscal second-quarter results will show a positive inflection is unclear.

Stiff competition, heavy investments and weak sales suggest not to Deutsche Bank's David Weiner, who reiterated a Hold rating on the company Tuesday with a $35 target.

Lulumon, slated to post results Thursday, was sent reeling late last year when a large batch of its signature women's yoga pants were found to be too transparent and its founding Chief Executive Chip Wilson got widely quoted saying "Frankly some women's bodies just don't actually work" for the pants.

Wilson recently sold half his sizable stake in Lululemon to Advent International and Weiner said the company's upcoming conference call could yield clarity on what role, if any, Weiner will continue to have.

Morgan Stanley's Kimberly C. Greenberger reiterated an Equal Weight rating on Lululemon this week and said long-term outlook is still in doubt.

The company may well beat expectations for the second period based on its conservative guidance, but "less bad" same-store sales figures could be insufficient to move the stock, Greenberg said.

Among consumers, "quality perception could remain a challenge," Greenberg said, citing a check of consumer reviews on the company's Web site.

Ratings by customers haven't improved since the first quarter and the company's core Wunder Under yoga pants got only 2.5 star average, "with customers citing quality issues," according to Greenberg.

Yet Topeka's Dorthy S. Lakner is bullish and called Lululemon "an undervalued growth story."

Like Greenberg, Lakner expects the company could beat second-quarter estimates. "But we're not buying the company for its second-quarter results," Lakner said.

"It's the premium brand in the sector," Lakner said. "From out store checks, it continues to up its game with fashionable products.

Lululemon traded Wednesday afternoon at $38.28, down 1.03 percent.