Lululemon's Q4 Has The Sell Side Saying 'Namaste'

Lululemon Athletica inc. LULU were up more than 9 percent at the close Wednesday following a fourth-quarter earnings beat that saw comps up a remarkable 12 percent.

The athletic apparel maker reported a Q4 adjusted EPS of $1.33 against a $1.27 estimate, sales of $928.8 million versus the $911-million consensus and issued forecast-beating first-quarter guidance. 

Matt Powell, a sports industry analyst at The NPD Group, told Benzinga that Lululemon's corner of the retail sector is outperforming fashion brands. 

"The athleisure business has definitely slowed, but frankly so has the rest of apparel," Powell said. "The apparel business in 2017 was awful, but athleisure outperformed fashion, and my expectation is that athleisure will outperform fashion, but overall there is a malaise in apparel and footwear."

Stifel Encouraged By Digital Growth, But Remains Cautious

Stifel's Jim Duffy said he long believed that Lululemon was “underpunching its weight online,” and said he is particularly encouraged to see an acceleration in digital sales. Lululemon’s online sales grew 42 percent year-over-year in Q4 and were up 26 percent sequentially.

"[The] key to the stock is proof that comp momentum can sustain," the analyst said. Compares for Lululemon will "stiffen" in the second half, he said. 

Stifel maintains a Hold rating on Lululemon with an $81 price target.

While considering Lululemon's execution risk — including soft North American retail traffic and "growing dependence" on an international business for which Duffy said proof of concept is "nascent" — the analyst concluded the stock has a balanced risk-reward profile. 

B Riley FBR Remains On The Sideline (Or Yoga Mat)

Lululemon far outpaced B. Riley FBR's estimate heading into the quarter, but it still was not enough to change analyst Susan Anderson’s opinion on the stock.

“LULU has a strong brand and has done a good job innovating, offering newness and gaining market share. However, we remain on the sidelines given valuation and risks with a slowing athleisure market," she said in a Wednesday note. 

Lululemon opened 24 holiday pop-up locations, which helped the brand meet holiday demand and acquire a wider customer base, with over 40 percent of pop-guests being first time Lululemon shoppers, according to B. Riley FBR. 

B. Riley FBR maintains a Neutral rating on Lululemon and raised its price target from $78 to $83.

Baird: Lulu 'Firing On All Cylinders'

Baird Equity Research's Mark Altschwager said he sees an attractive risk-reward scenario for Lululemon as the company “laps digital/assortment miscues from last spring and capitalizes on product/brand momentum.”

Lululemon has a continued path toward EPS growth in the mid-teens with significant opportunities in mens, international, accelerating digital growth and new store formats in North America, the analyst said. 

“Despite recent management turnover, Lululemon appears to be firing on all cylinders." 

Baird maintains an Outperform rating on Lululemon and raised the price target from $92 to $99.

William Blair Raves About Q4 

Analyst Sharon Zackfia said Lululemon’s Q4 print was "stellar," and said she sees double-digit comp momentum continuing into the first quarter.

Lululemon's relaunched website saw a 20-percent increase in site traffic, a 19-percent increase in conversion, a 19-percent increase in direct visits and a 32-percent increase in email visits, according to William Blair. 

Ship-from-store services are now available at 186 locations and are planned for expansion throughout the year, Zackfia said. In-store pickup for online purchases is expected to be rolled out in the second half of the year, she said.

William Blair maintains an Outperform rating on Lululemon. 

BofA: Lululemon Earnings Growing Faster Than Nike 

Lululemon is still in the early stages of multiple comp drivers, Bank of America Merrill Lynch analyst Rafe Jadrosich said in a note.

BofA raised fiscal 2018 EPS estimates from $3.05 to $3.10 to reflect a stronger same-store sales outlook.

“LULU trades at a slight premium to Nike Inc NKE despite faster earnings growth and significant international opportunity," Jadrosich said. 

BofA maintains a Buy rating on Lululemon and raised the price target from $90 to $95.

Related Links:

BofA Highlights Lululemon's Menswear Business, Store Flexibility Ahead of Q4 Print

In Sports Retail, Expect A Challenging Year

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