Lululemon Athletica Inc.’s stock rose more than 5% Friday to put it on track for a fresh all-time high, as analysts weighing in on third-quarter earnings were bullish despite soft guidance, saying the yoga gear maker is showing resilience in a pressured macro environment.
The company
LULU,
posted better-than-expected profit for the quarter and sales that matched the consensus, although its guidance was below estimates for the fourth quarter.
But analysts were unfazed, with Oppenheimer reiterating its outperform rating and raising its price target to $540 from $450.
“As we have long opined, in our view, LULU represents an increasingly established, yet still up and coming, omni-channel enabled, merchandising-lead disruptor within athleisure, and apparel broadly,” analysts led by Brian Nagel wrote in a note to clients.
The third-quarter numbers “showcase persistent underlying growth potential and economic resiliency of LULU. Looking closer into 2024, we are now even more upbeat upon nearer-term fundamental prospects
for LULU, particularly as macro pressures continue to abate, and the likelihood of investors to award shares a higher multiple, more reflective of the company’s superior fundamental prowess,” they wrote.
Lululemon remains a top pick for Oppenheimer.
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At J.P. Morgan, analysts also reiterated an overweight rating on the stock and raised their price target to $500 from $489.
“All together, third-quarter’s results translated to 500 basis points of market share gains in the U.S. (in both Men’s and Women’s), with North America unaided awareness of only 25% and management focused on ongoing innovation within product assortment and new-store openings and optimizations to drive customer acquisition,” analysts wrote in a note.
And while fourth-quarter guidance is below consensus, the company said this year’s Black Friday was its biggest sales day ever with strength across store and e-commerce channels, and balanced demand across full-price and markdown merchandise in stores, they wrote.
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Truist analysts, who also rate the stock a buy, raised their price target to $527 from $500, saying they believe the guidance is conservative given the momentum behind the company, its strong international growth profile, its loyal and higher-income customer base and a robust innovation pipeline.
That should continue to cushion it from macro factors, said analysts Joseph Civello and Scot Ciccarelli.
“Management acknowledged it is being prudent in its planning, as we are only 1/3rd through the quarter in an uncertain macro environment,” they wrote in a note.
Truist believes there’s meaningful upside potential after the record Black Friday.
“Although peers have remained more promotional, broader industry inventory headwinds appear to have moderated since last year,” said the note. “We believe this could drive incremental lift to gross margins in the fourth quarter on potentially fewer markdowns (vs. the current outlook for promotional levels to remain flat year-over-year, which would reflect a ~40 basis point headwind compared to 2019.).”
Wedbush said it’s sticking with its outperform rating on the stock and raised its price target to $503 from $420 previously. Analyst Tom Nikic highlighted 15% growth in men’s, which he noted was behind the 19% growth for women’s but “still solid.”
Lululemon said men were proving cautious in the high inflation environment but overseas sales performed strongly, driven by ad campaigns for the ABC Pant and a marketing campaign with NFL star DK Metcalf, who is wide receiver for the Seattle Seahawks.
The company is planning to launch men’s footwear in 2024 and is seeing good demand for its accessories business, which saw strong double-digit growth in the third quarter, said Nikic.
Lululemon’s stock has gained 50% in the year to date, while the S&P 500
SPX
has gained 19%.
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