D.A. Davidson Raises Target On Lululemon Following 'Solid' Q3 Report; Maintains Neutral

Lululemon Athletica inc. LULU reported robust Q3 results, with the revenue coming in at the high end of the guidance range and the EPS beating the guidance.

D.A. Davidson’s Andrew Burns reiterated a Neutral rating on the company, while raising the price target from $63 to $75.

Q3 Results

Lululemon reported its constant currency revenue at $544.4 million, with EPS of $0.47 and combined comps of 7 percent. All the three metrics beat the consensus and the estimates.

Gross margin grew 428 bps year-on-year to 51.1, driven largely by higher product margin and FX, but offset by investments in supply chain and design.

Guidance

The company guided to positive mid-single digit constant currency comps, with revenue of $765 million–$785 million and EPS of $0.96–$1.01.

Lululemon also updated its FY 2016 guidance, lowering the revenue guidance from $2.325 billion–$2.350 billion to $2.320 billion–$2.340 billion and raising the EPS guidance from $2.07–$2.15 to $2.11–$2.16.

“While many retailers are facing difficulties in 2H16, LULU's 3Q results and the 4Q outlook are encouraging,” Burns stated, while adding “Operational improvements are evident and the consumers continue to positively respond to LULU's innovation.”

Although Q4 appears to have started slow, the company’s successful Black Friday and Cyber Monday indicate that the momentum is likely to continue through the peak traffic periods.