Lululemon Doesn't Disappoint In Q2, As Same-Store Sales Impress The Street

Lululemon Athletica inc. LULU's earnings report was good enough to garner some praise from analysts at Deutsche Bank but not good enough to warrant a Buy rating. The firm's Paul Trussell maintains a Hold rating on Lululemon's stock with unchanged $59 price target, which implies downside from its current levels.

Lululemon's 7 percent comp growth in the quarter was impressed and came in higher than the 4 percent the Street was looking for and the 5 percent Trussell was modeling. Online comps grew 30 percent, which was double the 15 percent expected.

Lululemon's quarter was also highlighted by positive trends in conversion, average unit revenue and units per transaction, Trussell continued. Gross margin also rose 220 basis points to 51.6 percent due to a favorable product mix and lower product costs, which were partially offset by higher markdowns.

The Concerns

On the other hand, brick and mortar comps fell short of what the analyst was hoping for and SG&A deleveraged 380 basis points to 38.8 percent. Around one third of the increase was attributed to planned expenses to its ecommerce platform along with a "This Is Yoga" brand campaign.

Also, online sales accounted for 14 percent of total revenue, which is a figure that is not likely to be repeated going forward.

Finally, Lululemon's earnings report did show that the company is "back on the right path" but the stock's valuation is "currently full," which supports the analyst's Hold rating.

In pre-market trading Friday, shares of Lululemon were up 5.91 percent at $60.95.

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