Lululemon's Q3: 'A Very Large Breath Of Fresh Air'

Lululemon Athletica inc. LULU reported robust Q3 results, which Wells Fargo analysts believe was “a very large breath of fresh air” for the company.

The analysts reiterated an Outperform rating on the company, while lowering the valuation range from $84-$86 to $78-$80.

Strong Q3

“While expectations had been coming down throughout the quarter, LULU delivered a solid comp beat which not only illustrated a sequential comp acceleration, but it occurred on top of very tough compares from LY (last year),” according to the Wells Fargo report.

Lululemon’s pant comps were impressive, at 11 percent, especially following the 27 percent a year ago.

Gross margin was also strong during Q3, growing 420 bps, well ahead of the consensus expectations, driven by supply chain efficiencies, AUR gains and inventory management.

Beating Expectations

“We view Q3 as a much needed win for the bulls, and it shows the resiliency of the LULU brand and growth opportunities that management is capitalizing on,” the analysts stated.

The company reported its EPS for the quarter at $0.47, representing 34 percent year-on-year growth and beating the guidance.

Comps also beat consensus, increasing 7 percent, driven by both stores and ecommerce.

The EPS estimates for 2016 and 2017 have been raised.

The stock was up more than 15 percent in Thursday's pre-market session.