Cowen Predicts Lululemon's Traffic, Conversion, Comps Will Grow In 2019

Lululemon Athletica inc. LULU has been named a top idea for 2019 by Cowen.

The Analyst

Cowen analyst John Kernan maintains an Outperform rating on Lululemon with a $185 price target.

The Thesis

Lululemon has some of the the highest-quality growth, returns and brand durability narratives in the athletic apparel sector, Kernan said in a Monday note. (See his track record here.) 

The analyst expressed confidence that new product, integrated marketing and online momentum combined with loyalty, a healthy high-end customer demographic and athleisure fashion trends will yield better traffic, conversion and comps in 2019.

“Our survey indicates a high degree of loyalty and conversion levels should increase, as we expect new product to incorporate fashionable versatility."

While the retail sector continues to face uncertainty on tariffs and labor, freight and shipping costs, it means that valuations have been meaningfully reset from their 2018 highs.

Luluemon shares are pricing in some skepticism of the long-term margin expansion potential of the business, Kernan said. He views fourth-quarter guidance and fiscal 2019 same-store sales and EPS estimates as conservative, with the potential to be raised at the ICR conference in January.

The investor focus is on difficult comparisons in 2019 and the challenge of maintaining strong same-store sales growth, the analyst said, but new, innovative products across fabrics and fits in men’s and women’s should support high-single digit same-store-sales in 2019 and 20-percent-plus EPS growth in Cowen's base case scenario, he said. 

Lululemon continues to separate itself from the competition with the highest-quality product, and the loyalty the brand garners in North America suggests a significant opportunity internationally, Kernan said. 

Price Action

Lululemon shares were up 1.6 percent at $116.85 at the time of publication Tuesday. 

Related Links:

Lululemon Has Room For Valuation, Earnings Upside This Year

Analyst Stretches Lululemon's Price Target After Meeting With New CEO

Public domain photo via Wikimedia.