Lululemon Athletica Analysts Size Up Retailer Ahead Of Q2 Report, Talk Mirror Acquisition

Three analysts are increasing their Lululemon Athletica Inc LULU price targets ahead of the retailer's second-quarter earnings report. 

Piper Sandler also went into detail on Lululemon's acquisition of the fitness company Mirror. 

The Lululemon Analysts: Wedbush analyst Jenn Redding maintained a Neutral rating and increased the price target from $300 to $380.

Baird analyst Mark Altschwager maintained an Outperform rating and increased the price target from $355 to $400.

Piper Sandler analyst Erinn Murphy maintained an Overweight rating and increased the price target from $365 to $396.

The Lululemon Takeaways: Wedbush remains cautious on Lululemon, despite a strong second-quarter forecast.

“Revenues, comp, and gross margin are all tracking above consensus for 2Q20,” Redding said. “We see the differential above consensus narrowing.” 

Baird sees strength for Lululemon in both the second and third quarters.

“This month, we tracked strong growth in the overall assortment, accelerating newness trends, and lower markdowns-suggesting a healthy start to FQ3. Total product assortment growth increased to +20% Y/Y in August,” Altschwager said.

Baird's new price target of $400 in based on 35x EBITDA.

Piper Sandler said its Lululemon channel checks were strong.

“We have continued to visit both outlet and full-price stores throughout the summer. Long lines continue to be seen across the markets we visited including Vail, Austin, and Houston,” Murphy said.

What’s Next For Lululemon: Lululemon will report second-quarter earnings on Sept. 8.

Wedbush is forecasting revenue of $915.3 million and earnings per share of 66 cents.

Baird sees Lululemon reporting earnings per share of 54 cents in the second quarter.

Piper Sandler sees second-quarter revenue hitting $883.4 million and earnings per share coming in at 96 cents. 

The Mirror Acquisition: Analysts have started parsing Lululemon’s purchase of the in-home fitness company Mirror, which was announced in June for $500 million.

“We believe the recent acquisition of Mirror provides LULU a unique opportunity to further connect with its customers without the limitation of physical locations,” said Wedbush's Redding. 

Piper Sandler's Murphy went into detail on the Mirror acquisition. “We believe it could add $175 million in sales over the next twelve months,” the analyst said.

“If LULU can convert just 5% of their 7 million customers, this would equate to 350,000 new users to Mirror. At $2,000 a year per new customer, this would support $700 million of revenue over time.” 

Since the June announcement, Mirror downloads went from 52,000 to 70,000, she said. Users pay $1,495 for the Mirror and then $39 per month for the subscription. 

“We see substantial long-term potential to convert LULU customers to buy Mirror overtime,” Murphy said.

Piper Sandler see a long-term base of 350,000 new Mirror users based on 5% of Lululemon's 7 million customers. 

Peloton PTON has around 886,000 subscribers, Murphy said. Peloton isvalued at $24 billion after seeing its stock gain more than 190% in 2020.

LULU Price Action: Shares of Lululemon hit a new 52-week high of $399.50 in early Wednesday trading. Shares are up around 70% in 2020. The stock was trading 1.6% higher at $397.41 at last check.