Cowen: Lululemon's Chicago Store Could Set New Retail Standard

Cowen raised its price target for Lululemon Athletica inc. LULU after meeting with the athletic apparel maker's management team this week. 

The Analyst

John Kernan maintained an Outperform rating on Lululemon and raised the price target from $214 to $235.

The Thesis

Kernan met with Lululemon management and toured its new 20,000-square-foot store in Chicago. The analyst said he left the meeting with even more confidence in the company’s product cycle and emerging opportunities. (See Kernan's track record here.) 

"The brand and community based model underpins a return on capital structure that is higher than any business in North American retail." 

Lululemon's massive new store in the Lincoln Park neighborhood of Chicago is critical to future growth, as 10% of the store base could be in this format by 2023, he said.

The company is pushing for an impact greater than just apparel and is aiming to become a full-blown lifestyle brand and a part of the community, Kernan said. 

"The level of detail in the store design and overall energy inside the store/cafe/studios was impressive and further enhances Lululemon’s community-based model and ecosystem." 

The Chicago store has a yoga studio, another for high-intensity training and men's and women's locker rooms that "were more elevated in design, functionality and amenities than any gym locker room we have ever spent time in," the analyst said. 

Yoga classes provide a reason to frequently visit the store, something traditional retailers lack, he said.

Luluemon shares could be worth $300 in the next two to three years, Kernan said. 

Price Action

Lululemon shares were up 0.67% at $195 at the time of publication Tuesday. 

Related Links:

Analysts: Athletic Brands Aren't Making Enough Products For Women

Wall Street Reacts To Yet Another Lululemon Earnings Beat

Photo via Wikimedia.