Lululemon's China Comeback, Analyst Sees 60% Q3 Growth

BofA Securities analyst Lorraine Hutchinson reiterated a Buy rating at Lululemon Athletica Inc. LULU with a price target of $355.

The analyst says that the data shows that LULU’s sales in China have picked up momentum in the third quarter to date, following a slowdown in the second quarter.

Notably, Meritco’s data shows that Lululemon’s China sales increased by 48% in August and 67% in September, with a 98.4% correlation to reported sales. This marks a significant rebound from the second quarter.

Although monthly sales can be volatile, the analyst maintained the estimate of 60% growth for the quarter, adding 300 basis points to total sales growth compared to the second quarter.

The analyst writes that they have long regarded China as a significant growth opportunity, and this positive trend reinforces their confidence in LULU’s diverse growth avenues.

While still a small portion of total revenues, China plays a crucial role in Lululemon’s growth. Sales increased by 33% (+40% ccy) in FY22, 67% (+75% ccy) in FY23, and 39% year-to-date, with China accounting for 13% of total revenues, adds the analyst.

The analyst writes that Lululemon’s long-term plan aims for a fourfold increase in international revenue by 2026, with China as a key component of this growth trajectory.

Read: Lululemon Set For Strong Global Growth Despite Mixed US Trends: Analysts Eye China As Key Driver For 2024-2026 Expansion

Investors can gain exposure to the stock via Pacer US Cash Cows Growth ETF BUL and Invesco S&P 500 Equal Weight Consumer Discretionary ETF RSPD.

Price Action: LULU shares are down 0.68% at $319.00 at the last check Monday.

Image: Pedro Alvarez  from Pixabay

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