Lululemon Analyst Cuts Estimates But Remains Bullish

MKM Partners' proprietary survey suggests a year of continued momentum for Lululemon Athletica inc. LULU, but the research firm said multiple concerns could impact upcoming quarterly results.

The Analyst

MKM Partners' Roxanne Meyer maintains a Buy rating on Lululemon with an unchanged $179 price target.

The Thesis

The main findings from MKM's survey completed March 21 include: 

• The percentage of those surveyed who shopped at Lululemon within the last month fell from 34 percent a year ago to 26 percent. An "exceptionally strong" 48 percent of males surveyed shopped within the past month versus 20 percent of females. A slowdown in Canada was observed from 20 percent last year to 15 percent.
• New customer growth trends were favorable, as 6 percent of people surveyed started shopping at Lululemon within the past month. While this does mark a slowdown from 11 percent in January, it still supports ongoing traffic growth, Meyer said. 
• Forty-percent of those surveyed said Lululemon's product assortment is now better versus three to six months ago. Only 5 percent said it is worse.
• Recent spending trends mark the first negative read, with 27 percent of those surveyed said they are spending less versus 20 percent who are spending more.
• Twenty-nine percent of those surveyed said they plan to shop more often at Lululemon over the next three to six months. Among those who plan on shopping more, necessity was the most-cited reason, while those who plan to shop less highlighted price/value.

Estimate Changes

MKM's survey points to encouraging longer-term trends, but also a pullback in quarter-to-date spending, the analyst said.

MKM revised its first-quarter comp estimate from 11 percent to 7 percent. The consensus estimate is 8 percent. The firm also lowered its first-quarter EPS estimate from 68 cents to 65 cents; the consensus estimate is 67 cents.

Price Action

Lululemon shares were up 2.77 percent at $147.18 at the time of publication Monday. 

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