Bank Of America: Expect Lululemon To Continue To Take Market Share

Lululemon Athletica inc. LULU is primed to continue to take advantage of the growing trend of blending performance and fashion, according to a new report from Bank of America Merrill Lynch. 

The Analyst 

Analyst Rafe Jadrosich maintains a Buy rating on the company with a $172 price target.

The Thesis

Lululemon is well-positioned for secular trends supporting momentum in lifestyle athletic apparel and the shift away from performance wear, despite getting its start in the category, Jadrosich said in a Wednesday note. 

“LULU’s brand heritage is in high-performance technical apparel, but even as the athletic apparel trend has shifted away from performance styles to lifestyle over the last few years, LULU has maintained strong top-line momentum by broadening its assortment to include more fabrics, fits, and end uses,” the analyst said. 

Lululemon has been able to adeptly navigate away from a pure performance heritage and utilize innovation to blend performance and fashion in its new products, Jadrosich said. The apparel company should continue to gain market share from both casual and athletic competitors, he said. 

Nike recently launched its own yoga line to compete with Lululemon directly. 

A key advantage Lululemon has maintained is superior product quality and innovation, a differentiator Jadrosich said is continuing to widen.

Channel checks conducted with Asian suppliers indicate that Lululemon’s competitors are focused on reducing cost through cheaper fabrics and shortening lead times to limit markdowns and chase fashion trends, the analyst said. Lululemon’s business model does not force it to do the same, he said. 

Analysts Expects Company To Beat $4B Target 

Jadrosich is modeling for high-single digit same-store sales in FY2019 driven by the company’s mens business, e-commerce, new innovations and growing international sales, particularly in Asia.

The company is expected to host its first investor day in five years in April, where the analyst expects the company to exceed its $4-billion revenue target for 2020. 

“We believe the Investor Day is an opportunity to provide more clarity on the international opportunity, which we view as increasingly important as North America approaches store saturation. Since the last Investor Day, LULU has nearly tripled its international stores and opened its first store in China in 2016.”

Price Action

Lululemon shares were up 0.37 percent at $149.45 at the time of publication Wednesday. 

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