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Lululemon Athletica Inc. is one of the few apparel retailers that reported sales growth during the most recent quarter and analysts think the athletic retailer has even more room to grow.
Lululemon LULU, -7.39% reported second-quarter revenue of $902.9 million, up from $883.4 million last year and ahead of the $844.0 million FactSet consensus. The company expects top-line growth in the third and fourth quarters.
Lululemon also beat on profit, reporting adjusted earnings per share of 74 cents, ahead of the FactSet consensus for 56 cents.
Still, Lululemon shares were down 8.7% in Wednesday trading.
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“Buy the weakness,” wrote Susquehanna Financial Group analysts led by Sam Poser. “Lululemon cleared an exceptionally high bar in 2Q20.”
Moreover, Susquehanna sees room for growth as the company continues to invest in digital capabilities, expand into new store locations, and more.
“From a sales standpoint, our stores are highly productive and they enable so much more than simply the purchase of apparel by our guests,” said Calvin McDonald, chief executive of Lululemon, speaking on the earnings call late Tuesday, according to FactSet.
Nearly all Lululemon stores, about 97%, are open for business. Store locations are typically small, which limits the number of shoppers allowed at any one time due to COVID-19 social distancing guidelines.
However, he noted that stores provide a place for customers and local exercise studios to interact, are a place to attract new customers, especially men, and help with online transactions through ship-from-store and other options.
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Online comp sales rose 157% during the quarter. The company plans to further invest in e-commerce.
“Guests are patiently lining up to get into our stores, both physically and through our virtual tools,” McDonald said.
Among the digital upgrades the company has made is the addition of a virtual wait-list that will text customers when it’s their turn to enter a shop. In August, McDonald said 400,000 guests used the tool at nearly 280 locations where it’s available.
“Lululemon has attracted more customers to the brand and is taking market share during the pandemic, leveraging digital engagement in the midst of store closures,” Susquehanna said. “Long term, Lululemon will, in our view, continue to be one of the best, if not the best, performers in our coverage universe, despite the stock’s current valuation.”
Lululemon stock has rallied nearly 40% for the year to date while the S&P 500 index SPX, +2.01% has gained 5.2%.
Susquehanna rates Lululemon shares positive with a $426 price target.
Raymond James rates Lululemon stock strong buy with a $400 price target, up from $335, saying the company is poised for acceleration in 2021 for a number of reasons, including the expansion of women’s sizes to 20 and the June acquisition of the Mirror at-home workout platform.
Lululemon will offer Mirror in 10 to 15 of its U.S. stories by the fourth quarter. The company is planning a marketing push for the holiday season and 2021, with the platform expected to generate $150 million in revenue for the full year and be “modestly dilutive” to earnings this year.
“Athletic apparel and footwear remain well positioned in the current environment, with Lululemon’s strong results only the latest evidence the ‘sweat from home’ trend is continuing,” wrote KeyBanc Capital Markets analysts led by Matthew DeGulis.
KeyBanc rates Lululemon stock sector weight.
BMO Capital Markets rates Lululemon stock market perform with a $228 price target, up from $192.
“We continue to believe the brand is among the strongest brands in retail, however as revenues approach our ‘Brand Peak’ saturation point, we worry sales or margin will begin to butt heads and worry that a work-out-from-home trend may weigh on unit demand post pandemic,” analysts led by Simeon Siegel wrote.
