Cowen Stretches Lululemon's Target To $175 Following Strong Q2 Earnings

Lululemon Athletica LULU demonstrated strong momentum in Q2, in light of improved product assortment and a new guest acquisition for online and in-store sales.

The Analyst

Cowen analyst John Kernan maintained an Outperform rating and raised the price target from $137 to $175.

The Thesis

Lululemon reported earnings per share of 71 cents compared to estimates of 49 cents, as well as a year-over-year rise in digital sales of 47 percent, which now represents 24.6 percent of sales.

Management raised 2018 earnings per share guidance, implying a slight moderation in same-store sales trends, as well as product margin expansion and occupancy leverage.

Kernan outlined key growth driving pillars from the earnings report:

Digital momentum is strong, up 65 percent year-over-year. E-mail lists grew 80 percent and checkout improvements have driven the increase in conversion.
International expansion is prominent, as Asia’s same-store sales increased 50 percent with digital sales. International sales increased over 40 percent and represented 12 percent of sales last quarter.
Product assortment continues to be a main catalyst, with the Men’s product line gaining traction to represent 22 percent of sales. Women’s pants holds the highest product margin.
Store traffic has accelerated considerably this year, the note said.

“We have confidence that new product, integrated marketing, and online momentum combined with loyalty, a healthy high-end customer demographic, and athleisure fashion trends will yield traffic, improving conversion, and comps,” Kernan said in a note. “Our survey indicates a high degree of loyalty & conversion levels should increase as we expect new product to incorporate fashionable versatility.”