Lululemon is “checking all the right boxes,” according to Citi, with “all systems ready to go” for accelerated growth in 2023. Citi raised its rating on Lululemon shares to buy from neutral, after the company topped fiscal fourth-quarter estimates and offered an upbeat forecast for the coming year. In the latest quarter, the athleisure company earned $4.40 per share , excluding items, on revenue of $2.77 billion. Analysts polled by Refinitiv had estimated it would earn $4.26 per share on revenue of $2.7 billion. “While we liked the stock coming into 4Q (3/24 note), we feel even better following 4Q results and the F23 outlook,” analyst Paul Lejuez wrote in a Wednesday note. “Inventory-to-sales gap [was] better than expected,” Lejuez said, with a “pathway to further improvement (with limited markdown pressure).” The analyst added that Lululemon is facing “no signs of a sales slowdown with 1Q trends starting stronger than expected, underscoring LULU’s brand strength/momentum in its largest market.” He added that the brand’s Chinese market is expected to rapidly accelerate in the fiscal 2023, becoming “a much more meaningful long-term growth driver. Lejuez estimates China will account for as much as 22% of the brand’s sales by fiscal 2027, up from 8% in fiscal 2022. Citi increased its price target on Lululemon shares to $440 from $350, implying 37.4% upside from Tuesday’s closing price. Lejuez noted that Lululemon has doubled its U.S. sales since 2019, underscoring its brand strength and the ongoing opportunity it has in an already mature market. He expects its per-share earnings to grow more than 20% annually until the 2027 fiscal year. For comparison, Lululemon’s management said first-quarter sales will grow between 17% and 19% from the prior year. “While many retailers that saw a big sales increase during the pandemic also saw big margin expansion, LULU has consistently invested in their business over this period, which we believe will drive continued topline growth in the mid-teens,” said Lejuez. “If anything, LULU is ‘under-earning’ relative to how its sales base has grown, which gives them flexibility if sales were to slow at any point,” the analyst added. Lululemon shares jumped more than 15% on Wednesday. The stock had remained flat in 2023 amidst a 6.8% decline over the past 12 months. —CNBC’s Michael Bloom contributed to this report.
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