Sell-Side Bullish On Lululemon, Stock Rallying After Q1 Earnings, Sales Beat

Lululemon Athletica inc. LULU is shaping up to be one of the biggest winners in the athleisure era.

The athletic apparel maker known for making yoga pants an everyday fashion decision has diversified its business to include menswear and direct-to-consumer, and the results are beginning to show. 

Shares were trading up nearly 17 percent one day after the retailer reported a first-quarter earnings and sales beat with comparable store sales up 8 percent and total comps up 19 percent. Lululemon shares are up nearly 154 percent over the past year.

Sell-side analysts were largely impressed by Lululemon’s Q1 print. 

Cowen Sees Margin Expansion Opportunity 

Oliver Chen of Cowen raised the price target for Lululemon from $100 to $120 and maintained an Outperform rating.

While Lululemon’s valuation is expensive and expectations are high, the long-term opportunity is significant, with more room to improve supply chain and inventory management to achieve margin expansion over time, the analyst said. 

“We also appreciate management’s ongoing efforts to drive innovation across all categories and we believe LULU is starting to reap the benefits of its multiyear investments.”

'Jaw-Dropping' Metrics

William Blair analyst Sharon Zackfia said Lululemon delivered "a truly exceptional" first quarter. The analyst maintained an Outperform rating on the company.

Nearly every metric was "jaw-dropping," Zackfia said, including a 28-percent increase in guest acquisition and a near-doubling of the company’s email file.

“We believe good likelihood of upside exists, with the potential for low double-digit comps to continue through the third quarter, particularly if e-commerce traffic and conversion continues to benefit from recent initiatives.”

William Blair expects Lululemon to come close to hitting its

Bernstein Stays Neutral 

Bernstein analyst Jamie Merriman raised the firm's price target for Lululemon from $80 to $99 and maintained a Market-Perform rating. Lululemon guided conservatively, but will see continued sales strength that leads to better margins, the analyst said. 

“Lululemon has delivered improved revenue growth driven by e-commerce improvement in the last few quarters that we expect to persist throughout 2018," analyst Jamie Merriman said in a note. "In addition, we expect this topline growth to help drive margin expansion in the short run.”

Beyond 2018, the analyst sees the potential for fashion risk, as nearly 40 percent of Lululemon customers shop the brand for fashion first, according to Bernstein. 

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