Lululemon's International Growth And Men's Apparel Drive Optimism Amid US Challenges: Analysts

Lululemon Athletica LULU reported financial results for the second quarter after the market closed on Thursday. 

Analysts covering the company provided their takes:

• Truist Securities analyst Joseph Civello reiterates the Buy rating on the retailer, maintaining the price forecast at $310.
• Goldman Sachs analyst Brooke Roach reiterates the stock’s Neutral rating and increases the price forecast to $291 from $286.
• Piper Sandler analyst Anna Andreeva maintains the Neutral rating and increases the price target to $260 from $250.
• BMO Capital Markets analyst Simeon Siegel reiterates the company’s Market Perform rating with a price forecast of $265.
• JP Morgan analyst Matthew R. Boss reiterates the Overweight rating, with a price forecast of $338.
• Stifel analyst Jim Duffy maintains the Buy rating, with a price forecast of $370.

Truist Securities: Civello is optimistic about the future outlook, noting that management’s increased focus on introducing new products is crucial for driving growth. The analyst maintains a Buy rating with expectations realigned, strong international momentum, self-help initiatives gaining traction in the U.S., and a $1 billion repurchase authorization.

The analyst has reduced their EPS estimates for 2024 and 2025, lowering the projections from $14.30 and $16.05 to $14.05 and $15.40, respectively.

Also Read: Lululemon Q2 Earnings: Revenue Miss, EPS Beat, Comps Up 2%, Strength In International, Soft Guidance

Goldman Sachs: The analyst notes that while the U.S. women’s business remained weak, growth in men’s apparel and Canada helped offset this decline.

Additionally, better-than-expected margins were achieved due to effective fixed expense management, favorable product mix, and a lower markdown rate.

The analyst revised the EPS estimates for FY24, FY25, and FY26 to $13.99, $15.27, and $17.37, respectively, up from the previous $13.81, $15.08, and $17.04, to account for the second-quarter results, weaker sales trends in North America, and improvements in cost control.

Piper Sandler: The analyst has adjusted the ’24/’25 estimates upward following the second-quarter beat.

While the stock may receive some leeway due to past underperformance, the analyst sees its valuation will remain limited until the U.S. comparable store sales turn positive.

The analyst has increased their EPS estimates for 2024 and 2025 to $13.88 and $14.75, respectively, reflecting growth rates of 9% and 6%.

BMO Capital Markets: According to the analyst, widespread negativity was offset by better-than-expected gross margins (with markdowns remaining flat) and clean inventory levels, which likely alleviated some concerns.

However, the company still reports gross margins below those of its peers and is experiencing significant slowdowns in both domestic and Women’s revenue.

JP Morgan: Although the in-stock position for smaller sizes has improved through the second quarter and into the third quarter, CEO McDonald pointed out that the major issue affecting the Women’s business is “a product plan that introduced less newness in both core and seasonal styles,” the analyst writes.

The analyst’s forecast suggests that the brand could gain from international expansion, strong growth in men’s products, new categories like personal care and footwear, and increased e-commerce sales alongside steady growth in the core North American business.

This leads to mid-teens revenue growth and high-teens earnings growth through FY26, with modest annual improvements in operating margins due to gains in gross margin and leverage from selling, general, and administrative expenses.

Stifel: According to the analyst, the company needs to demonstrate a turnaround in its U.S. business to counter the negative outlook.

In the meantime, the analyst considers the shares to be undervalued and anticipates that, with a potential turnaround in the U.S. business, the shares could see a significant increase in value by early 2025.

Price Action: LULU shares are trading lower by 0.72% to $257.14 at last check Friday.

Photo via Shutterstock

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