lululemon Q1 Earnings Preview: 'Getting Better All The Time'

Despite exiting 4Q15 with elevated inventory levels, Lululemon Athletica inc. LULU is likely to indicate inventory in-line with sales by the end of 1Q16. Sterne Agee CRT’s Sam Poser reiterated a Buy rating for the company, with a price target of $75. The analyst commented that the company seemed to be “turning the corner.”

Analyst Sam Poser expects lululemon to report SSS of 7.1 percent, EPS of $0.30 and revenue of $483.5M for 1Q. Gross Margin is forecasted at 47.0 percent, representing a y/y contraction despite continued expansion in product margins. The contraction is due to likely higher markdowns and currency headwinds as well as moderate occupancy and depreciation deleverage.

Inventory Back In-line

lululemon had exited 4Q15 with inventory levels up 36.5 percent, versus sales growth of 17 percent. The company has continued to clear its surplus inventory from the port disruptions through warehouse sales and normal product flows. Poser believes lululemon would exit 1Q16 with inventory levels back in-line with sales.

The analyst stated that the company’s growth profile was healthy, and that it was poised to double its revenue by 2020. He added, “The separation between LULU and its competitors is once again becoming evident. LULU globally targets the almost luxury consumer, arguably the 1%. As LULU continues to grow and improve, the likelihood of reaching the 2% of the market, while increasing the average units per transaction, increases as well.”