Last Friday, Lululemon Athletica Inc.’s stock went up 16.9% as analysts quickly raised their price targets. This was because the company’s better-than-expected third-quarter earnings and updated outlook put an end to worries that the brand was becoming less relevant.
As of Thursday, the stock was on track for its biggest one-day gain since October 30, 2008, when it jumped 21.2%. It has now won for 11 of the last 12 days, which is the longest winning streak since October 16–21, 2023.
Up to 16 of the 38 analysts who follow LULU +18.33% on FactSet raised their price goals and predicted more gains. One of them set a new high of $440 for the stock on the Street.
Analysts at Stifel raised their price target from $370 to $438, which is the second highest on FactSet. They were happy with the “high-quality” beat in sales and earnings per share.
The idea that brands are becoming less important and that there is more competition is not true, according to a note to clients from analysts lead by Jim Duffy.
Stifel, which has a buy rating on the stock, said that the company’s message about new lines coming out in the first quarter of 2025 and a turning point in the women’s business has not changed.
“There aren’t yet enough proof points to substantiate this, but strong execution in FY2H adds to credibility and international momentum highlights the potential for global growth,” Duffy wrote.
The price of Lululemon stock has gone up about 39% so far in the fourth quarter, but it has still fallen about 22% so far this year. During that time, the S&P 500 SPX +0.12% has gone up 27%.
The company that makes athletic wear has switched from using mostly dull colors to using brighter ones like cerulean blue, mauve, and bright pink, and it seems to be working.
Analysts at William Blair were worried about color before the report came out because management had said earlier this year that a big part of the drop in sales was “self-inflicted.”
Overall sales went up 9% to $2.40 billion, just above the $2.36 billion FactSet estimate. International sales rose 33% and were the main reason for this. In America, sales at the same stores went down 2%, and income rose a more moderate 2%.
Analysts at Oppenheimer were happy to see “increasingly clearer signals of domestic sales growth stabilization.” This means that the brand is getting better and will grow again once new goods come out.
“Shares have risen significantly from their recent lows, but our recent conversations with clients suggest that the market is still cautious about the name,” a group of analysts led by Brian Nagel wrote on Friday.
Oppenheimer rates the company as “outperform,” which is the same thing as “buy.”
Analysts at Jefferies, on the other hand, were much more negative. They reiterated their “underperform” rating on the stock and told buyers to sell any gains on Friday.
Analysts led by Randall J. Konik said that about 75% of the business is less than it was a year ago. This is because same-store sales in the U.S. are down for the second quarter in a row.
In a note to customers, they said, “Competition is still fierce and isn’t going away any time soon. It is rapidly expanding its store base and positioning stores near LULU.”
They wrote that as inventory levels rise, gross margins probably won’t keep going up. Even though foreign sales were good, that probably won’t last because the macro environment isn’t stable.
“The fact that growth in the men’s segment has slowed to less than 10% is a red flag,” they wrote. “Growth in accessories is probably driven by trying to attract a younger, more vain customer, and it will level off in the near future.”
Jefferies said its main point is simple: the North American market and the athletic clothing group as a whole are both slowing down.
“Fashion changes are still not in LULU’s favor, and when you add in ‘The Law of Large Numbers,’ we think it will be hard for the company to keep up its high sales, margin, and EPS growth,” they wrote.
