On Monday, Piper Sandler kept its Neutral rating on Lululemon Athletica Inc. (NASDAQ: NASDAQ:LULU) with a consistent price target of $260.00. The firm highlighted that Lululemon's shares have risen approximately 40% since the summer lows, indicating market anticipation of a third-quarter earnings beat and a steady full-year forecast.
According to InvestingPro data, the company maintains impressive financial health with a 'GREAT' overall score, supported by robust revenue growth of 13% over the last twelve months. Analysts believe that investors are expecting at least flat comparable store sales for the U.S. market, as opposed to a low single-digit decline in the second quarter of 2024.
The recent sales acceleration in October, as reported by Bloomberg's Second Measure, aligns with Lululemon's 25% off Friends & Family event during the second week of the month. Additionally, November sales showed further improvement following the mid-month launch of the Disney (NYSE:DIS) X Lululemon collection. Despite some concerns about the brand's direction with this collaboration, consumer interest appeared to be piqued by the new offerings.
Lululemon's physical stores experienced high traffic over the Black Friday weekend, and the brand's online presence grew, partly due to early access to sales provided through the app. As the company heads into the end of the third quarter of 2024, inventory levels are expected to be up by the mid-teens percentage range, offering ample opportunity for promotion. While product margins could potentially increase, the guidance for flat markdowns in the second half of 2024 may be under pressure, with a slight increase expected in the third quarter and a slight decrease in the fourth quarter.
The company's stock is currently trading at a price-to-earnings (P/E) ratio of 25.9 times earnings, with a notably low PEG ratio of 0.38, suggesting attractive valuation relative to growth. InvestingPro analysis indicates the stock is currently trading below its Fair Value, presenting a potential opportunity for investors.
The company maintains strong fundamentals with a healthy gross profit margin of 58.5% and a solid current ratio of 2.4, demonstrating effective operational efficiency and strong liquidity. This valuation reflects a surge in fast money buying and short covering, as the number of shares shorted on Lululemon has increased by over 40% since the start of the year.
Looking ahead, the discussions surrounding the maturity of the U.S. market, the sustainability of growth in China, and the target of 23% EBIT margins are expected to continue into the first quarter of 2025. For deeper insights into LULU's growth prospects and valuation metrics, InvestingPro subscribers can access comprehensive Pro Research Reports, which provide detailed analysis of the company's financial health, growth trajectory, and market position among 1,400+ top US stocks. These factors will likely hinge on the market's reception to the new product lines introduced by Lululemon's recently formed team.
In other recent news, Lululemon Athletica Inc. reported a 7% rise in second-quarter total revenue, reaching $2.4 billion, and earnings per share (EPS) of $3.15, surpassing the expected $2.94. However, the fiscal year 2024 sales growth forecast was revised from 11-12% to 8-9%. Analyst firms such as Morgan Stanley (NYSE:MS), Baird, and Truist Securities have responded positively to these developments, maintaining their positive ratings and adjusting their price targets to reflect current trends. However, Citi and Needham have maintained Neutral and Hold ratings respectively, citing various challenges the company is currently facing.
In addition to financial results, Lululemon is expected to see fewer competitive pressures as competitor Alo shifts its focus away from the Athleisure/Yoga market. This repositioning, along with a revitalized product line and the cycling out of popular products, could support a stronger case for the company's price-to-earnings (P/E) ratio to approach the mid-20s.
According to analyst notes, the company is also expected to revive innovation in its product lines starting in the first quarter of 2025. This, coupled with Alo's market departure, could see a return to 3-4% comparable store sales growth in the Americas in 2025.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.