What To Expect From Lululemon's Q2? Analyst Sees Momentum, New Stores and Global Expansion

Telsey Advisory Group analyst Dana Telsey reiterated an Outperform rating on Lululemon Athletica Inc. LULU, with a price target of $430.

The analyst is remarkably upbeat about LULU's results and applauds the company's investment in future growth opportunities (innovative products, international expansion, digital fitness) from a position of strength.

LULU is scheduled to report 2Q23 results after the market closes on Thursday, August 31.

The analyst notes that LULU planned to open nine net new stores for the second quarter. During last quarter's call, LULU raised its expectations of store openings to 50 stores in 2023.

Telsey forecasts Q2 EPS of $2.52, up from $2.20 last year, at the high end of the guided range of $2.47-$2.52.

The analyst expects Q2 total sales growth of 16.1% Y/Y to $2.170 billion, in line with the market's expectation of $2.169 billion.

With continued business momentum and a solid growth runway, the analyst maintained a $430 price target, which assumes a 30.6x multiple on the two-year forward EPS estimate of $14.03.

In the quarter to be reported, Telsey looks for comp growth of 10% on top of last year's 25% increase, slightly below the consensus estimate of +12%.

Below the topline, Telsey predicts 210 bps of gross margin expansion to 58.6%, in line with the consensus of 58.6% and within guidance for margin expansion between 200-220 bps.

The analyst expects a 200 bps of operating expense deleverage Y/Y to 37.5% of sales, in line with the consensus estimate.

Overall, Telsey forecasts operating margin expansion of 10 bps to 21.1% in the quarter, in line with the consensus of 21.1% and compared to guidance for approximately 10 bps of expansion from last year's 20.9% margin.

Price Action: LULU shares are trading higher by 1.26% to $364.77 on the last check Friday.