On Friday, Citi maintained a Neutral rating on Lululemon Athletica Inc. (NASDAQ:LULU), while increasing the price target to $380 from the previous $270. The adjustment follows Lululemon's third-quarter sales and earnings per share (EPS) outperforming consensus estimates, attributed to stronger international sales and gross margin (GM).
According to InvestingPro data, the company maintains a GREAT financial health score and has achieved 13% revenue growth over the last twelve months. Despite a -2% comparable sales decline in the Americas, management is optimistic about the response to new and innovative products in the women's segment, anticipating a positive turn in the U.S. market by the first quarter of 2025.
Lululemon's fourth-quarter guidance, with earnings projected between $5.56 and $5.64, aligns with consensus expectations. The company anticipates a slight year-over-year decrease in markdowns, indicating a non-increasing promotional stance. The guidance is perceived as conservative considering management's satisfaction with Black Friday weekend sales and the projection includes an approximate 300 basis points comparable sales headwind from a shorter holiday calendar.
This is a factor that did not significantly impact the fourth quarter of 2019. InvestingPro analysis shows impressive gross profit margins of 58.5% and strong liquidity with a current ratio of 2.4, suggesting resilience despite the guidance's conservative stance. Additionally, the guidance accounts for gross margin pressure due to fixed cost deleverage, even with the benefit of a 53rd week.
Looking ahead to fiscal 2025, Citi's increased confidence in the U.S. market's potential for growth is tempered by prevailing uncertainties. With Lululemon's shares trading at a current P/E multiple of 26.7x and showing a notable 7.5% return over the past week, the risk/reward profile appears balanced. InvestingPro analysis suggests the stock is slightly undervalued, with 12 additional exclusive insights available to subscribers. The company's management has signaled expectations for an inflection point in the U.S. as the company continues to introduce new products.
In other recent news, Lululemon Athletica Inc. has been the subject of multiple analyst notes following its reported 7% rise in second-quarter total revenue to $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 like TD Cowen, Oppenheimer, and Morgan Stanley (NYSE:MS) have adjusted their price targets and ratings, reflecting the company's recent performance and future prospects.
TD Cowen exhibited confidence in Lululemon's robust 30% year-over-year growth in international markets, adjusting the company's price target to $383 and sustaining a Buy rating. Meanwhile, Piper Sandler and Citi maintained their Neutral ratings, with Citi projecting a third-quarter earnings per share (EPS) beat. Analysts also anticipate a reduction in competitive pressures as competitor Alo shifts its focus away from the Athleisure/Yoga market.
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