Study Shows Lululemon Is Building Momentum; This Pro Is Selling Puts

• Shares of Lululemon Athletica inc LULU have been trending lower in the last three months and are down 25 percent since September 8.
• MKM Partners’ Roxanne Meyer maintained a Buy rating on the company, with a price target of $69.
• The company is poised to benefit from the improvement in its supply chain and increased purchase intentions of shoppers, Meyer stated.

Lululemon Athletica has reported its 3Q EPS at $0.38, marginally ahead of its guided range of $0.35-$0.37. The company is expected to report 10 percent comps, a 340 basis point reduction in gross margin and progress on closing the gap between inventory and sales, analyst Roxanne Meyer said.

The fourth quarter has started off well, with benefits from the company’s efforts to improve the supply chain beginning to trickle in. “Adverse weather, Canadian FX impact and mall traffic remain as overhangs,” Meyer added.

In the report MKM Partners noted, “Our Buy thesis on LULU is based on our view of above-Street, 23% EPS growth over the next few years driven by top line and margin expansion.” The company’s comps are expected to increase as it boosts its assortment.

Lululemon Athletica is also expected to benefit from the current spending and the additional spending intentions of shoppers for the Holidays.

“LULU's brand positioning relative to others along quality, fit and innovation is particularly impressive. The majority of consumers view LULU either the same or better vs. other brands as it relates to overall merchandise, quality, fit and innovation, with a 5% uptick noted in favorability vs. September,” Meyer wrote.