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Oppenheimer: Why We Love Lululemon

Oppenheimer: Why We Love Lululemon

Shares of Lululemon Athletica inc. (NASDAQ: LULU) were trading slightly higher early Friday morning, despite a bullish note by analysts at Oppenheimer.

Oppenheimer's consumer/specialty retailing analyst Anna Andreeva reiterated an Outperform rating on Lululemon's stock with an unchanged $75 price target, citing that the athletic category is "still hot" and fears around an eventual slowdown are overblown.

The Rating Explained

"After four to five years of significant industry outperformance compared to traditional apparel, bears would argue that slowdown is inevitable, at a time when even traditional retailers are entering the category seemingly every day," Andreeva wrote. "By our bottom-up estimates of the top 10 players in Women's Athletic, we believe market in North America (not including footwear) is still growing at a very healthy high-single-digit rate in 2015."

Related Link: For Specialty Retail, The "Real Test" Comes In The Holiday Quarter

Andreeva continued that athletic apparel is still "one of the few bright spots" in retail, as evidenced by strong commentary from retailers, including Kohl's Corporation (NYSE: KSS)'s statement that athletic was its best performing business in its most recent quarter.

Looking Forward

Andreeva further added that despite new entrants, Lululemon is still expected to maintain and expand its 15 percent-plus market share at the expense of more "mature" companies like Champion and Adidas that are at risk to "donate share."

Meanwhile, Lululemon has shown "momentum" in men's sales (14 percent of total revenue) with double-digit comps for the last three quarters and on track to reach $1 billion in sales over time. Ivivva (29 stores, 10 percent of total footprint) continues to add stores "aggressively" with 20 stores expected for 2015 and a long-term objective of 150 stores. Finally, after 10 quarters of negative comps, Canada (24 percent of total revenue) turned positive in the first quarter.

Bottom line, Lululemon has many "natural drivers" that could propel as much as high-single digit comp growth going forward. The analyst is "conservatively" modeling 6 percent comp growth in the bottom half of 2015 and 5 percent for 2016.

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Latest Ratings for LULU

Nov 2019MaintainsNeutral
Nov 2019Initiates Coverage OnStrong Buy
Nov 2019MaintainsOutperform

View More Analyst Ratings for LULU
View the Latest Analyst Ratings

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