Lululemon 'Fresh And Unique,' Shows Promise Thanks To China Opportunity, Growth Push Say Analysts

Analysts see China as one of the biggest opportunities for apparel company Lululemon Athletica Inc LULU. With international sales hitting 50% of total revenue in the coming years, a stimulus in China could offer a potential catalyst to offset macroeconomic concerns.

The Lululemon Athletica Analysts: KeyBanc Capital Markets analyst Ashley Owens maintained an Overweight rating with a $350 price target.

JPMorgan analyst Matthew Boss maintained an Overweight rating with a $338 price target.

Oppenheimer analyst Brian Nagel maintained an Outperform rating with a $445 price target.

KeyBanc on LULU: A tour of stores in China helped highlight the company's growth strategy in the country and community relationships, Owens said in a new investor note.

"Management reiterated the importance of the Chinese market for achieving the 4x of international revenue target laid out in the Power of Three x2 plan," Owens said.

The analyst said China shows "promise" thanks to Lululemon's marketing and efforts in the region.

"We believe that localization, community nourishment, and product excellence have helped to establish LULU as a premium wellness brand within the $33B China Mainland active lifestyle market."

Macro uncertainty in China could weigh on the near-term potential for Lululemon in China, the analyst cautioned. The analyst said the long-term potential in the region is "intact."

Read Also: Lululemon’s International Growth And Men’s Apparel Drive Optimism Amid US Challenges: Analysts

JPMorgan on LULU: One of the top takeaways from the China event and visit for Boss was low brand awareness and potential growth outside of North America.

"Management cited the brand remains in ‘early stages' and ‘nowhere near maturity' internationally in any market w/China brand awareness at 15% today and single-digit market share globally," Boss said.

International revenue was growing significantly in recent years and hit 21% of fiscal 2023 revenue, the analyst added.

The analyst highlighted the company's three-pronged approach for international growth of localized planning, direct-to-consumer models and community activations.

Despite macroeconomic pressure in China, Lululemon was seeing strong growth in the country and low markdowns suggesting strong demand, the analyst added.  

Boss highlighted a shift in consumer spending in China on fitness/outdoor and well-being products.

The analyst predicted Lululemon could hit 50% of its revenue coming from international markets by 2031.

"Our math points to another five years of +double-digit consolidated revenue growth assuming N/A revenues grow prudently ‘in line' w/ the category."

Oppenheimer on LULU: Visits to several athletic apparel company stores in China showed that consumer headwinds persist in China, Nagel said.

"Recent monetary policy easing represents a first step, but more aggressive fiscal efforts are likely needed to spur a broader, more significant rebound in domestic discretionary spending," Nagel said.

The analyst said consumer traffic was "solid" during visits mid-day on a Friday in China for several stores across Lululemon, Nike Inc NKE and Under Armour Inc UA.

"In our view, LULU is fresh and unique in Shanghai positioned as a performance-focused, albeit somewhat more toned-down lifestyle brand."

Consumer traffic in Lululemon stores and Nike stores was "more brisk than in nearby units of other brands," the analyst added.

Nagel said product offerings from Under Armour and Adidas were "less energized" and "more stale" than Nike and Lululemon.

LULU Price Action: Lululemon stock is up 1.37% to $282.06 on Monday versus a 52-week trading range of $226.01 to $516.39. Lululemon stock is down 45% year-to-date in 2024.

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