Lululemon Remains a Favorite Among Analysts After Earnings
Photo Credit: @Lululemon instagram
Lululemon shares pulled back following a mixed earnings report, but analysts are rallying around the athletic-wear company and calling it a best-of-class specialty retailer.
Digital: E-commerce growth increased 70% (FX neutral) in 1Q20, including a 125% increase in April, indicating the brand is resonating with consumers.
“LULU has cemented its position as the best publicly traded company in the specialty retailer sector, in our view,” according to Susquehanna analyst Sam Poser. “We estimate that 50% of the customers that shopped on lululemon.com in 1Q20 had never shopped at Lululemon before.”
Reopening: Lululemon has reopened about 61% of its global stores. Units in China, which have been open since early April, have seen sales steadily recover. Currently, about 52% of locations in both North America and Europe have opened. The company hopes to have nearly all stores open by the end of June.
COVID-19 “hot spot” risk: 57% of Lululemon's full-price stores are located in COVID-19 "hot spots," according to UBS. The firm warns this may weigh on Q2 sales and cause concern for the market.
Growth in Men’s and International: Through management’s strategic plan, LULU has an elevated focus on growing its popularity with men and international consumers.
Men’s category: Management is committed to doubling the size of its Men's business by 2023. “We note men's is just under $1B for LULU today compared to >$30B for NKE at retail, while women's is $2.8B for LULU today vs. >$15B for NKE. Further, LULU has generated >40% of incremental growth over the last two years from their digital platform vs. only ~30% for NKE,” said Piper Sandler analyst Erinn Murphy.
International: LULU has a target of quadrupling the size of its International business, with 60% of new store growth through FY23 originating outside of North America. Jefferies analyst Randy Konik notes that international sales still account for only about 10% of revenue for LULU. “This is much lower than larger athletic peers, and represents substantial whitespace for the brand.” Jefferies maintains a NEUTRAL rating.
