Lululemon Has Growth Opportunities In Men's, International, Wells Fargo Says In Upgrade

Lululemon athletica, inc. LULU received a vote of confidence Monday from a Wall Street analyst. 

The Analyst 

Wells Fargo analyst Ike Boruchow upgraded Lululemon from Market Perform to Outperform and raised the price target from $144 to $200.

The Thesis

After hosting a series of investor meetings with key executives at Lululemon, Boruchow said the brand’s strength is evident to essentially everyone. (See the analyst's track record here.) 

“Our key takeaway is that LULU’s industry-leading momentum is likely sustainable through [the second half] and well into 2019,” Boruchow said.

“Notably, LULU continues to enhance the product offering in women's bottoms, adding innovation and new fabrications that drive repeat purchases year after year." 

While the analyst said he's late to the Lululemon bull party, he still sees meaningful beats and upward revisions ahead, made possible by the fact that the company has fixed its supply chain and digital channel, This should lead to sustainable outperformance into the foreseeable future, Boruchow said. 

A newly enacted loyalty program could unlock meaningful value for the brand heading into 2019, he said. 

Lululemon’s men’s business continues to outperform and comprises 22 percent of sales, Boruchown said. The retailer has aspirations to become a legitimate dual-gender brand over time, with mens' potentially making up 35-40 percent of sales, he said. 

“One of the interesting ways that LULU is improving the men’s business is by store expansions that give the men’s assortment more prominent footage and visuals. From a product perspective, pants have been extremely successful in men’s, and they are planning a big initiative in men’s outerwear ahead of holiday," the analyst said. 

The international market is an early stage opportunity for Lululemon, as it makes up just 10 percent of sales now and hasn't turned a profit yet, according to Wells Fargo.  

An inflection in profitability is likely coming in 2019, Boruchow said. 

Price Action

Lululemon shares were up 1.09 percent at $155.38 at the close Monday. 

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Public domain photo via Wikimedia.