Lululemon Has Long-Term Potential To 'Nearly Triple Revenue,' Bullish Analyst Says Ahead Of Q3 Print

William Blair said it expects Lululemon Athletica inc. LULU to meet or slightly beat its EPS estimates for the yoga apparel maker when it reports third-quarter results Dec. 5. 

The Analyst

William Blair analyst Sharon Zackfia maintains an Outperform rating on Lululemon. 

The Thesis

Heading into the Q3 print, Zackfia said Lululemon’s exceptionally strong sales trends should continue given its decent execution and strong flow of new products, including a 20th anniversary collection. (See her track record here.) 

While shares have dropped roughly 25 percent with the broader market slump and the opportunity for upside has lessened due to aggressive Wall Street expectations, William Blair continues to see the potential for earnings growth.

“We continue to see the potential for sustainable 15-20-percent annual EPS growth given Lululemon’s enviable competitive position composed of highly productive stores, aspirational proprietary product, a healthy e-commerce channel and the potential to ultimately nearly triple revenue as the concept continues to expand around the globe," the analyst said. 

William Blair projects a 14-15-percent comp gain driven by mid- to high-single digit gains in brick-and-mortar and a roughly 40-percent increase in e-commerce sales.  

Fewer in-store markdowns than a year-ago are also a promising sign for the athletic apparel company, Zackfia said. 

“Overall, we project sales growth of 19 percent to $735 million, in-line with consensus and above guidance of $720 million to $730 million." 

New CEO Calvin McDonald is expected strengthen the brand in the years ahead, the analyst said, adding that a loyalty plan is a likely initiative from the new C-suite occupant. 

Price Action

Lululemon shares were down 0.78 percent at $122.80 at the time of publication Tuesday.

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