Lululemon's Balancing Act: Unraveling The Yoga Apparel Retailer's Potential Gross Margin Expansion

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Share Price: $0.80

Min. Investment: $1,000

Valuation: $3.5B

Telsey Advisory Group analyst Dana Telsey reiterated an Outperform rating on the shares of Lululemon Athletica Inc. LULU, maintaining the price target of $425.
The company is scheduled to report 1Q23 results after the market close on Thursday, June 1.
The analyst notes that lower air freight costs are expected to be the primary driver of gross margin expansion (planned up 190-320 bps Y/Y) in the first quarter.
At the end of 4Q, Lululemon's inventory was up 49.8% Y/Y to $1.447 billion, vs. the topline growth of 30.2%.
The analyst expects the company's inventory growth to moderate to 30%-35%, exiting the first quarter.
By 2H23, the analyst mentions that inventory growth is anticipated to align with topline growth broadly.
In the first quarter, the company expects to open 5-10 net new stores, and looking ahead to the full year, the company anticipates opening 45-50 net new stores in FY23.
Based on the above, the analyst expects company to register an EPS of $2.00 vs. $1.48 last year. Total sales is expected to be up 19.8% Y/Y to $1.932 billion.
Below the topline, the analyst looks for 320 bps of gross margin expansion to 57.1%, 60 bps of operating expense deleverage Y/Y to 38.4% of sales.
Taken together, the analyst expects operating margin expansion of 260 bps to 18.7% in the quarter.
Price Action: LULU shares are trading lower by 0.61% to $340.24 on the last check Friday.

Momentum18.84

Growth92.76

Quality19.05

Value55.80

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