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Lululemon Has Room For Valuation, Earnings Upside This Year

Lululemon Has Room For Valuation, Earnings Upside This Year

Lululemon Athletica Inc. (NASDAQ: LULU) is selling a wider variety of items, more new products and more markdowns, according to a Baird analysis.

The athletic apparel retailer reported first-quarter sales of $520.3 million versus estimates of $513.9 million on June 1 and an adjusted EPS of $0.32 against a $0.28 estimate.

“We remain encouraged by trends in our assortment tracker,” senior research analyst Mark Altschwager said in a note, adding that lululemon’s higher markdown mix is “not overly concerning at this stage.”

Baird maintained an Outperform on lululemon with a $70 price target.

‘Continued Opportunity’ At Yoga Wear Brand

In one example of lululemon’s growth potential, the analyst said the company’s men’s business — which notched $300-400 million in sales in 2016 — could reach $1 billion.

The retailer’s second-quarter guidance — and assortment trends that Altschwager said are “generally favorable” — make for an attractive risk/reward profile, the analyst said.

Lululemon is projecting Q2 sales of $565-570 million against a $560 million estimate and an adjusted EPS of $0.33-$0.35 versus a $0.41 estimate.

After three “stagnant” years between 2013 and 2015, “lululemon is showing progress with product, brand, margin and international growth initiatives,” Altschwager said.

The company’s position in the activewear market, geographic whitespace and improved product development and supply chain operations point to an EPS compound annual growth rate in the high teens, the analyst said.

“We’re encouraged by the quick comp recovery in late Q1/Q2 and the continued opportunity as marketing investments ramp (newer for company) and the product innovation engine accelerates — which together should drive earnings and valuation upside as the year unfolds.”

Related Links:

Lululemon Higher After Report Citing Potential Private Equity Interest

Jim Cramer On Lululemon: Good Business But 'Toxic' Stock

Latest Ratings for LULU

Apr 2021Morgan StanleyMaintainsEqual-Weight
Mar 2021RBC CapitalMaintainsOutperform
Mar 2021BTIGMaintainsBuy

View More Analyst Ratings for LULU
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