On Monday, Deutsche Bank (ETR:DBKGn) updated its price target for Lululemon Athletica Inc. (NASDAQ:LULU), increasing it significantly to $396.00 from the previous $292.00. Despite the positive adjustment, the firm maintained a Hold rating on the shares. The revision followed Lululemon's third-quarter earnings report, which revealed stronger-than-anticipated performance, particularly in the Americas and International markets.
According to InvestingPro data, the stock has surged 19.5% in the past week, with analysis suggesting the shares are currently slightly undervalued based on their Fair Value model.
The analyst highlighted that the quarter's results could signal that the company is past the most challenging period, as evidenced by the acceleration of sales in the Americas and the sustained double-digit growth internationally. The standout feature of the report was the gross margin, which expanded by 39 basis points year-over-year, defying the forecasted contraction of 50-60 basis points. InvestingPro data shows impressive gross profit margins of 58.85% and an overall financial health score of "GREAT," with particularly strong profitability metrics.
The market had braced for higher markdown pressures, but Lululemon's management anticipates further product margin benefits in the fourth quarter, with an expected increase of approximately 60-70 basis points year-over-year and slight improvements in markdowns.
According to the analyst, Lululemon's sharpened focus on introducing new products is finding favor with consumers, and product newness is projected to return to historical levels by the first quarter of 2025.
The financial institution foresees a path for Lululemon's earnings to grow at least in the high single digits by 2025. Nonetheless, the analyst opted for a cautious stance, remaining on the sidelines due to a perceived balanced risk/reward ratio after today's positive stock price movement.
The firm awaits further evidence that Lululemon's strategy focusing on brand newness will continue to attract consumer interest and drive growth.
In other recent news, Lululemon Athletica Inc. has seen a series of price target adjustments from various firms following its robust third-quarter earnings report.
The company reported a 9% revenue growth to $2.40 billion and earnings per share of $2.87, surpassing expectations. Analysts from BMO Capital Markets raised their price target for Lululemon to $302, while CFRA increased its price target to $376. TD Cowen hiked its target to $421, citing solid holiday sales and a promising outlook on gross margin.
Piper Sandler also raised its target to $340, acknowledging Lululemon's effective management of sales and gross margin. The firm revised its earnings estimates upward to $15.20 for the fiscal year 2025. Guggenheim, maintaining a positive stance, raised its target to $415, citing the company's impressive revenue growth and strong international performance.
These recent developments highlight Lululemon's strong performance and potential for growth. The company's robust economic model and prospects for global expansion were reasons for the upgraded targets. It's noteworthy that Lululemon's international business showed robust growth, with a 33% year-over-year increase, and an impressive 39% surge in China.
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