Barclays Positive On Lululemon's Q2 Results

Lululemon Athletica inc. LULU reported healthy Q2 revenue growth and margin expansion. Any near-term weakness in Lululemon’s shares, due to investors expecting better comps, would be “a good buying opportunity,” Barclays’ Matthew McClintock said in a report. He maintained an Overweight rating on the company, with a price target of $85.

Lululemon reported its Q2 adjusted EPS at $0.38, meeting the high-end of guidance. Analyst McClintock lowered the EPS estimates for 2016 and 2017 from $2.20 to $2.15 and from $2.65 to $2.60, respectively, commenting that the Q2 results “make us more likely to believe that the company will reinvest nearer-term upside into longer-term growth, which we fully endorse.”

Revenue Performance

Lululemon reported revenue of $514.5 million, up 13.6 percent. Comps rose 5 percent, with brick-and-mortar and ecommerce comps of 4 percent and 7 percent, respectively. While an online warehouse sale in 2Q15 lowered overall comps by ~2 percent in 2Q16, currency headwinds resulted in a negative impact of ~1 percent, McClintock noted.

GM Performance

Lululemon achieved 260bps of gross margin expansion to 49.4 percent, beating expectations and marking the first expansion since 1Q14, the analyst mentioned. He added, “We expect continued gross margin expansion for the remainder of the year and well into 2017 and beyond.”

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