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On Friday, TD Cowen maintained a positive stance on Lululemon Athletica Inc. (NASDAQ:LULU), reiterating a Buy rating and a price target of $445.00. According to InvestingPro analysis, the company appears undervalued, with analyst targets ranging from $194 to $500, and the stock currently trading at $292.61. Stifel analysts highlighted Lululemon’s record-high gross margin in the fourth quarter, despite flat comparable sales in the Americas and slightly negative trends in the U.S. market specifically. InvestingPro data shows an impressive gross profit margin of 58.85% and strong revenue growth of 10.84% over the last twelve months. The management team expressed confidence in the company’s potential for top-line growth acceleration and the current state of inventory and gross margins.
Lululemon continues to invest in selling, general and administrative expenses (SG&A) and capital expenditures (Capex) to enhance store experiences and technology. Innovations in the women’s segment are expected to be a growth catalyst as the market conditions in the Americas improve. The company’s financial guidance for the fiscal year anticipates a revenue increase of 6% to 7%, which is closely aligned with the consensus estimate of a 7% rise. The projected earnings per share (EPS) range is $14.95 to $15.15, which could potentially increase by $0.20 to $0.25 with share buybacks, compared to a consensus estimate of $15.37 and TD Cowen’s estimate of $15.50.
Management’s guidance suggests a conservative gross margin decrease of 60 basis points, expecting it to remain flat at the start of the fiscal year 2024. This comes even as the company faces a slowing trend in the Americas. The guidance includes 20 basis points of tariffs from Mexico and China and acknowledges that foreign exchange rates account for half of the margin pressure in the outlook.
For the Americas, the company forecasts low to mid-single-digit growth, while China and the rest of the world (ROW) are expected to grow by 25% to 30% and 20%, respectively. The analysts consider this outlook conservative, particularly for China, which represents 13% of sales but accounted for 42% of Lululemon’s fiscal year 2024 sales growth.
TD Cowen’s analysis suggests that Lululemon’s management could repurchase over 20% of the company’s capitalization within four years while maintaining $1.6 billion in net cash on the balance sheet. They project a three-year compound annual growth rate (CAGR) of approximately 9% in EPS leading into the fiscal year 2027 estimate.
In other recent news, Lululemon Athletica Inc. reported fourth-quarter earnings and revenue that exceeded expectations, with a 13% year-over-year revenue increase and earnings per share (EPS) of $6.14. Despite these strong results, the company’s guidance for the first quarter and fiscal year 2025 has prompted several analysts to adjust their price targets. BMO Capital Markets lowered its price target to $302, maintaining a Market Perform rating, citing concerns over Lululemon’s long-term growth, particularly in the domestic and women’s segments. Truist Securities reduced its target to $380 while keeping a Buy rating, noting that Lululemon’s valuation is near historical lows, suggesting potential for growth. Piper Sandler also revised its target to $315 with a Neutral rating, pointing to macroeconomic factors affecting U.S. growth. KeyBanc Capital Markets adjusted its target to $400, maintaining an Overweight rating, and expressed confidence in Lululemon’s management and strategic initiatives. Stifel analysts cut their target to $424 but retained a Buy rating, acknowledging the company’s conservative guidance and history of outperforming expectations. These developments highlight the mixed sentiment among analysts, reflecting both the challenges and potential opportunities for Lululemon in the coming year.
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