Lululemon Shines In Tough Apparel Sector, Analysts Say: 'Execution At Its Finest'

Lululemon Athletica LULU reported second-quarter financial results after the market closed Thursday. Here’s what analysts are saying about the apparel and footwear company.

The Analysts:

• Bank of America analyst Lorraine Hutchinson has a Buy rating and a price target of $400.
• Morgan Stanley analyst Alex Straton has an Overweight rating and raises the price target from $315 to $343.
• Telsey analyst Dana Telsey has an Outperform rating and a price target of $470.
• KeyBanc analyst Noah Zatzkin has an Overweight rating and raises the price target from $350 to $375.

Related Link: After Hours Alert: Why Lululemon Shares Are Taking Off 

The Takeaways: Hutchinson called the second quarter report from Lululemon “execution at its finest” with the company having a beat and a raise.

“The strength this quarter was particularly impressive given the company’s ability to avoid the sharp slowdown in consumer demand facing the industry at margins above prior expectations,” Hutchinson said, praising customer growth across geographies and balance between segments like men’s and women’s clothes.

“Looking ahead, we see meaningful untapped growth opportunities internationally (still significantly unpenetrated in Europe and China), through new categories (on the move, hike, golf, tennis, footwear) and from the upcoming two-tiered membership launch.”

Straton raises the price target on Lululemon in what was called a stand-out quarter.

The second quarter was the ninth consecutive quarter Lululemon beat Street estimates, demonstrating an ability to "outperform in the challenging environment,” the analyst explained.

Lululemon saw strong gross margins in the quarter in the face of “heightened promotional activity across the industry,” Straton notes, adding: “The stock remains well below 2021 year-end levels and we think there’s only further room to run from here. This high-quality asset won’t stay on sale for long & we’re buyers.”

The second quarter beat by Lululemon was well received by Telsey, who maintains an Outperform rating on the stock.

“LULU delivered yet another impressive quarter with better-than-expected performance across the board despite ongoing macro and inflationary pressures that continue to weigh on retailers and consumers,” Telsey said.

Telsey said guidance from the company for the second half of the year could be conservative.

“Overall, we continue to believe that LULU remains well-positioned with strength in the core business supported by continued growth opportunities in digital, international, footwear and MIRROR.”

Lululemon is well positioned in a tough macro environment, Zatzkin said in an updated note that saw an increase to the price target.

“We see opportunity via product newness/innovation and international growth and remain confident in management’s ability to execute on its Power of Three x2 plan,” Zatzkin said.

The analyst names footwear and accessories as two potential long term growth drivers. The Blissfeel footwear was launch in March and Restfeel and Chargefeel were launched in the second quarter. Lululemon plans to launch a training shoe called Strongfeel before the end of 2022.

LULU Price Action: Lululemon shares are up 9% to $320.01 on Friday.

Image: Courtesy of Lululemon website