LULU Defies Challenging Macro Environment: Analyst Sees Continued 'Beat-and-Raise' Potential

Wedbush analyst Tom Nikic reiterated an Outperform rating on the shares of Lululemon Athletica Inc LULU with a price target of $415.

The company will report second-quarter FY23 earrings on Thursday, August 31, 2023, before market opens.

The analyst said that one of the biggest themes in the branded apparel/footwear space this year has been the significant inventory destocking in the wholesale channel.

The analyst believes that LULU's 100% DTC model is a boon in the currently-challenging wholesale environment and added that by not having exposure to the wholesale channel, the company is able to have more pricing discipline and avoid the promotional pressure that has plagued the other athletic brands.

While the macro environment has become increasingly challenging, the analyst has seen that high-momentum brands have continued to perform well.

The analyst said that LULU continues to resonate with consumers due to their strong product offering, as the Align women's franchise is still resonating, belt bags remain hot, and they seem to have generated some buzz for the back-to-school category.

With a challenging environment that has led many companies to downwardly revise the guidance, LULU strikes the analyst as a name that can continue to beat-and-raise. 

The analyst believes the company continues to perform well, with favorable channel/demographic exposures and continuing product innovation.

While many companies in the space have "hockey-sticked" their guidance, LULU has been prudently conservative, embedding decelerations that allow for continued beats-and-raises, the analyst observed.

Price Action: LULU shares are trading higher by 0.54% at $376.75 on the last check Wednesday.