Baird: Lululemon Remains One Of The Best-Positioned Retail Brands

Lululemon Athletica inc. (NASDAQ: LULU), which is scheduled to report second-quarter earnings after the close Thursday, is on a “multiyear path toward double-digit EPS growth” and has an attractive risk/reward profile over the next year, according to Baird.

Q2 comps and EPS figures are expected to fall in line with consensus, senior research analyst Mark Altschwager said in a Monday note. Upside and guidance for continued comp momentum in the second half of 2017 would be needed to drive the stock higher in the near-term, he said.

The analyst called the retailer “one of the best-positioned brands in a volatile retail landscape.”

Baird maintains an Outperform on Lululemon with a $70 price target.

What To Expect

Lululemon’s guidance for Q2 calls for an EPS of 33–35 cents against a 41-cent estimate and sales of $565 million – $570 million versus a $560 million estimate.

The athleticwear retailer made “quick corrections” to merchandising miscues, launched a global brand campaign on May 15 and held a July online warehouse sale that could give a 100-basis-point tailwind to comps, Altschwager said.

Those moves make Baird “optimistic” Lululemon will deliver in-line results Thursday, the analyst said.

Lululemon faces a difficult comparison in the second half of this year to the third and fourth quarters of 2016, when comps were up 7 percent and gross margin expansion was 430 and 380 basis points, respectively, according to Baird.

“With that setup in mind, we believe lulu will likely need to deliver on Q2 expectations to build further confidence in back-half estimates and maintain the recent valuation recovery,” Altschwager said.

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