Credit Suisse upgraded shares of lululemon athletica, saying it is increasingly confident it can sustain double-digit sales growth, raise margins and drive earnings higher.
Shares of the athletic apparel maker, known for its yoga and running garb, rose 2.8%, or $1.86, to $67.91. Credit Suisse raised its price target to $78 from $58 and changed its rating to Outperform from Neutral.
After surveying products across markets and online, and analyzing store maturities, Credit Suisse concluded that the company is able to maintain “extraordinary high levels” of full-priced sales.
Moreover, CS says while new stores produce comparable store sales growth from the high teens to 20%-plus, even mature stores could contribute 6% to 9% growth. Analyst Christian Buss writes:
“We are increasingly confident in lululemon’s ability to sustain double-digit comps, achieve a 30%-plus operating margins, and drive earnings power north of $5.00. As a result, we are raising our F2013/F2014 estimates to $1.69/$2.26 (from $1.60/$2.06). … Analysis of assortments across three markets (New York, Pittsburgh, Toronto) highlights: 1) continued stock-out issues in mature markets; 2) full priced selling across the chain even with increasing breadth of assortments; and 3) the magnitude of the “catch-up” opportunity in secondary markets as brand awareness ramps.”
