Lululemon Investors: UBS Sees Long-Term Margin Headwinds

In a report published Wednesday, UBS analyst Janice Ong maintained a Neutral rating on Lululemon Athletica inc LULU, with a price target of $63. Lululemon's management has handled the delays in 1H inventory flows that arose due to West Coast port issues well and was close to being on track in April. "In the near term, easy compares and improving product should enable comp and traffic gains," analyst Janice Ong mentioned. In the report UBS noted, "This in combination with the well managed port issues should drive the company's 1Q EPS." However, leadership turnover challenge continues to be a big area of concern. "We are still looking for conviction that LULU can consistently comp +M+HSD and recoup 300-500 bps of gross margin in order to return to a low to mid-20s op margins," Ong added. Increasing competition, the need for investments beyond FY15 and acceleration of growth in lower margin business remain long-term areas of concern.