Lululemon in a ‘League of Its Own’ as Shares Hit Highest Ever

(Bloomberg) -- Lululemon Athletica Inc. shares rose as much as 6.7% to a record high after again issuing a beat and raise quarterly report.

“Lulu continued to show that it is in a league of its own,” Telsey Advisory’s Dana Telsey wrote.

The retailer surprised the Street with a 500-basis point total comparable sales beat, even better than the 460-basis point beat last quarter. Furthermore, even the boosted year forecasts look beatable, analysts from Cowen, RBC Capital Markets, Bernstein and Bloomberg Intelligence said.

The 12-month consensus price target now stands at $205 per share, implying nearly a 9% upside return from Thursday’s close, up from $194 at the start of the week, according to Bloomberg data.

Here’s what analysts are saying about the results:

Susquehanna, Sam Poser

• “Exceptional” 2Q results further demonstrate that Lulu is the “premiere retailer in our (and likely any) coverage universe and is deserved of a premium valuation”
• There are no signs of any deceleration in the momentum, as Lulu’s PEP (product, engagement, process) initiative is “firing on all cylinders”
• “Best-in-class” execution and customer engagement, including a new loyalty program which has so far only launched in four North American cities, and innovative product offerings should continue to drive “top-tier results”
• Rates positive, boosts price target to $222 from $210

RBC Capital Markets, Kate Fitzsimons

• Accelerating 17% 2Q comps and 90-basis point product margin expansion confirm that Lulu remains a “bright spot” in the consumer discretionary space
• Believes the company can continue to see comparable sales and EPS upside into the second half of the year, with slight multiple expansion warranted given the consistency of strong results
• Rates outperform, raises price target to $215 from $200

Bloomberg Intelligence, Poonam Goyal

• Lulu’s expectations for double-digit earnings gains through 2023, fueled by margin expansion and low-teens sales growth, could prove conservative as personal care, experiential retailing and footwear boost sales higher
• Innovation is driving results, as is a push on the “power of three,” a focus on men’s, digital and international
• Healthy store traffic, conversion that supports double-digit sales gains and adjacent product expansion are catalysts

DA Davidson, John Morris

• Positive EPS performance and better-than-expected revenue growth were partially offset by planned increases in SG&A as Lulu “sets its eyes on growth-driving investments in 3Q and beyond”
• In the second half, the company will face tougher same-store sales growth comparisons of 18% and 17% in 3Q and 4Q, respectively, while upside to gross margin diminishes as it nears historically high levels
• Rates neutral on “lofty” valuation, increases price target to $185 from $175

Wedbush, Jen Redding

• Results were “by-and-large in-line with high investor bar”
• Growth initiatives seem “reasonable” and Redding sees “levers for continued growth including innovation, financial/channel flexibility, and continued strong cash flow”
• However, she views valuation as “fair” and remains at a neutral rating
• “The market has priced in much of the growth to come”

Bernstein, Jamie Merriman

• “Another strong quarter,” as sales momentum continues to exceed Bernstein’s high expectations and drive higher-than-expected earnings
• Updated guidance remains conservative given the continued sales momentum
• However, the analyst believes that with “high multiples and increasingly tough comps, there is less room for error, and signs of a deceleration could drive multiple compression”
• Rates market perform, price target raised to $183 from $170

Additional analyst actions:

• Stifel (Jim Duffy): “Compelled by the growth momentum and runway, we remain confident in justification for a premium multiple to 20%+ earnings growth expectations through FY21”
  • Rates buy, price target $238
• Cowen (John Kernan): Confident that there is upside to year forecasts and long-term targets given the company’s business execution
  • Rates outperform, price target to $214 from $200
• KeyBanc Capital Markets (Edward Yruma): Product momentum remains “impressive” and e-commerce and international are “delivering on growth promises
  • Rates neutral on valuation
• Morgan Stanley (Kimberly Greenberger): “Revised FY guidance and strength across sales channels, regions, and categories suggest that the growth story is in full execution mode”
  • Greenberger sees a “compelling long-term growth opportunity” driven by international expansion, digital growth, and product innovation, but valuation keeps her rating at equal-weight
  • Boosts price target to $169 from $163

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, Will Daley

©2019 Bloomberg L.P.