On Friday, Guggenheim maintained a positive outlook on Lululemon Athletica Inc. (NASDAQ: NASDAQ:LULU), raising the price target on the company's stock to $415 from the previous $350, while keeping a Buy rating. This adjustment follows Lululemon's third-quarter earnings report, where the company posted a diluted earnings per share (EPS) of $2.87, surpassing the analyst's estimate of $2.72.
According to InvestingPro analysis, LULU is currently trading below its Fair Value, suggesting potential upside opportunity. The company maintains impressive financial health metrics, with an overall score of "GREAT" in InvestingPro's comprehensive assessment.
The athletic apparel retailer reported an 8.7% increase in revenue for the quarter, amounting to $2.40 billion, which exceeded the projected $2.36 billion. This growth was attributed to robust traffic across all channels, including a record number of visitors to its app and e-commerce platform, where digital sales rose by 4%.
The company's strong performance aligns with its impressive 13% year-over-year revenue growth and industry-leading gross profit margins of 58.5%, as reported by InvestingPro.
Lululemon's international performance was particularly strong, with a notable 24% rise in comparable store sales in China and a 20% increase in the Rest of World segment. However, the Americas showed some softness, with a 2% decline in comparable store sales. Despite flat sales in the United States, the overall revenue in the Americas went up by 2%, propelled by a 9% growth in Canada.
The company's management is actively working to revitalize the U.S. business, seeing early benefits from a new reporting structure that fully integrates merchandising and brand teams. Enhancements in product offerings, such as seasonal colors, prints, and patterns, have been noted, with plans to return to historical levels of seasonal newness by the first quarter of 2025. The management also highlighted the potential for growth in the U.S. market, pointing to the low unaided brand awareness at just 36%.
Lululemon's gross margin for the quarter expanded by 40 basis points to 58.5%, driven by improvements in product margin, favorable foreign exchange impacts, and despite some fixed cost deleverage. Additionally, the company completed the acquisition of its Mexico franchise during the quarter.
InvestingPro data reveals the company's strong financial position, with a healthy current ratio of 2.43 and exceptional returns on equity of 43%. For deeper insights into LULU's financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
With these solid results, Guggenheim has increased its FY24 EPS estimate for Lululemon to $14.15 from $14.05, while the FY25 EPS estimate remains at $15.30. The firm's confidence in Lululemon's brand and overall market positioning underpins the raised price target, despite acknowledging the potential challenges posed by macroeconomic uncertainties and a shorter holiday shopping season.
In other recent news, Lululemon Athletica Inc. has seen significant developments. The company's third-quarter earnings per share of $2.87 and a 9% revenue growth to $2.40 billion exceeded expectations, leading to a series of price target revisions.
KeyBanc Capital Markets increased its price target to $400, citing Lululemon's 9% year-over-year revenue growth and a diluted earnings per share of $2.87. Other firms such as Stifel, Truist Securities, UBS, BTIG, Telsey Advisory Group, and Bernstein also raised their targets, reflecting optimism about Lululemon's future performance.
Notably, Lululemon's international business showed robust growth, with a 33% year-over-year increase, and an impressive 39% surge in China. The company's management highlighted that product innovation is expected to align with historical levels by the first quarter of 2025. However, the fiscal year 2024 sales growth forecast was revised from 11-12% to 8-9%.
These are recent developments providing investors with an updated perspective on Lululemon's performance and potential. The company's robust economic model, which includes a return on invested capital of 32%, and its prospects for global expansion were reasons for the upgraded targets. Analyst firms such as Morgan Stanley (NYSE:MS), Baird, and Truist Securities have responded positively to these developments, adjusting their price targets to reflect current trends.
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