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Lululemon Surges to Record High After ‘Near Flawless Execution’

Lululemon Surges to Record High After ‘Near Flawless Execution’

(Bloomberg) -- Lululemon Athletica Inc. shares soared to a record high on Thursday after the maker of upscale yogawear topped fourth-quarter estimates and its forecast eased concerns of decelerating sales.

Lululemon’s new products are resonating with consumers, driving more store visits and turning window shoppers into buyers, as well as limiting markdown activity, analysts said. Investments into digital improvements are paying off, as e-commerce penetration reached 26 percent. In short, Cowen called management’s execution “near flawless” and Morgan Stanley said the company was “firing on all cylinders.”

Shares rose as much as 16 percent to $171 in New York trading. The stock has now added almost 40 percent since the year began, about three times the gain in the 159-member Russell 1000 Consumer Discretionary Index.

Lululemon Surges to Record High After ‘Near Flawless Execution’

Here’s what analysts are saying:

Telsey Advisory, Dana Telsey

  • “It is clear, in our view, that operating momentum continues across the business at LULU with yet another strong quarterly earnings release”
  • Customer response to product innovation continues to be positive, particularly in both men’s and women’s bottoms; strength in direct-to-consumer channel remains a driver of overall sales momentum
  • Following a strong finish to fiscal 2019 and “solid” outlook for the current year, Telsey now looks to the April 24 analyst day for greater detail regarding product innovation, international expansion, category extensions, infrastructure and supply chain, and further plans to drive continued growth going forward
  • Rates outperform, price target $190

What Bloomberg Intelligence Says

Lululemon’s stronger 4Q results and year outlook show that opportunity lies in taking the brand beyond its outlined growth strategy. The company has realized its e-commerce penetration, gross margin and operating margin targets ahead of plan, and we see it achieving its $4 billion sales goal earlier, too.
--Poonam Goyal, senior retail analyst
Click here to read the research

Cowen, John Kernan

  • “Execution across merchandising, stores, finance remains near flawless”
  • Annual forecast looks conservative; Lululemon has posted “significant upside” to both quarterly and annual forecasts in the past two years, “giving us further conviction in the direction of estimates”
  • Lululemon remains Kernan’s top idea; he rates the stock outperform and lifts the price target to $192 from $190

Morgan Stanley, Kimberly Greenberger

  • First-quarter forecast “more than offset investor concerns about deceleration,” while its performance over the past year and its new full-year targets “suggest it is firing on all cylinders, with no sign of slowing down.”
  • Rates equalweight, raises price target to $150 from $141

Wedbush, Jen Redding

  • First-quarter EPS forecast “passes the February Stress Test, despite less upside ahead”; investors appeared relieved that numbers weren’t worse given the “mostly negative data in February across the board”
  • Still, the revenue forecast for the quarter of $740 million to $750 million is below Wedbush Big Data estimate for $770 million and comparable sales outlook for low-double-digit growth compares to Wedbush Big Data estimate of 13.01% growth
  • Remains comfortable with the neutral rating as the firm’s proprietary data continuing to show less upside ahead; price target remains $155

DA Davidson, John Morris

  • Heightened traffic, increased conversion and limited markdown activity drove impressive fourth-quarter comparable sales and indicate that “assortment is resonating with consumers” and online-channel investments are paying off
  • Thinks Men’s category “on track” to reach management’s goal of $1.0 billion in sales by 2020
  • Views U.S.-based store fleet as “nearing saturation and thus, growth will need to be driven through internal drivers and international expansion plans”
  • The China market is “paramount to the company’s aspirations to become a $4.0 billion brand”
  • Rates neutral, price target to $155 from $145

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Courtney Dentch, Jonathan Roeder

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