Cowen Stretches Lululemon's Target To $175 Following Strong Q2 Earnings

Lululemon Athletica LULU demonstrated strong momentum in Q2, in light of improved product assortment and a new guest acquisition for online and in-store sales.

The Analyst

Cowen analyst John Kernan maintained an Outperform rating and raised the price target from $137 to $175.

The Thesis

Lululemon reported earnings per share of 71 cents compared to estimates of 49 cents, as well as a year-over-year rise in digital sales of 47 percent, which now represents 24.6 percent of sales.

Management raised 2018 earnings per share guidance, implying a slight moderation in same-store sales trends, as well as product margin expansion and occupancy leverage.

Kernan outlined key growth driving pillars from the earnings report:

• Digital momentum is strong, up 65 percent year-over-year. E-mail lists grew 80 percent and checkout improvements have driven the increase in conversion.
• International expansion is prominent, as Asia’s same-store sales increased 50 percent with digital sales. International sales increased over 40 percent and represented 12 percent of sales last quarter.
• Product assortment continues to be a main catalyst, with the Men’s product line gaining traction to represent 22 percent of sales. Women’s pants holds the highest product margin.
• Store traffic has accelerated considerably this year, the note said.

“We have confidence that new product, integrated marketing, and online momentum combined with loyalty, a healthy high-end customer demographic, and athleisure fashion trends will yield traffic, improving conversion, and comps,” Kernan said in a note. “Our survey indicates a high degree of loyalty & conversion levels should increase as we expect new product to incorporate fashionable versatility.”

Price Action

Lululemon shares were up 10 percent at $151.72 in Friday's pre-market session.

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