Lululemon Atheltica (LULU) is making investors feel a bit more comfortable on Thursday morning.
Shares of the Vancouver-based apparel company are surging in pre-market trading after posting record earnings results in Wednesday's post-market in a move that reverses the stock implication felt in its last release.
The company said adjusted earnings for the three months ending on February 3 rose 39% from last year to $1.85 per share, well ahead of the Street forecast of $1.74, while group revenues advanced 26% to $1.17 billion. Same-store sales, a key metric, jumped 16% as online shipments surged 37% and gross margins improved by 100 basis points to 57.3%.
"Our strategic investments in the business to support our digital expansion and supply chain improvements delivered impressively on both our top and bottom line," CEO Calvin McDonald told investors on a conference call late Wednesday. "All of this combined with our significant growth outside North America allowed us to achieve a high level of results for our employees and shareholders."
He added that digital investments will be able to continue outpacing the competition moving forward.
Analysts likewise accelerated their price targets while maintaining widespread "Buy" ratings on the stock after the quality quarter and guidance that came in above the high end of their forecasts.
"Despite our recent concerns that LULU may have to explain weather issues that we think are hurting US retailers in 1Q to date (which PVH (PVH) confirmed tonight), 1Q same store sales guide to increase low double-digits confirms that LULU's product cycle and initiatives are overriding powerful macro industry headwinds," Credit Suisse analyst Michael Binetti commented. "Bottom line: With 2019 guidance well above expectations, we think LULU has a clear path to focus the market on its LT initiatives at the analyst day."
He raised his price target from $172 to $190 based upon the override of his initial concerns. The price target is among the highest on Wall Street, bested only by two analysts, one is JP Morgan which maintained the stock on its "Analyst Focus List" with a $197 price target.
The price target raises indicate that many bulls believe there is much more room to run for the stock, even after such a rapid surge on earnings.
"We view LULU as one of the fastest-growing and healthiest brands in consumer. Our price target of $190 implies upside of more than +15%, even after a strong post-market surge yesterday," Oppenheimer analyst Brian Nagel said, summing up the bulls view.
To be sure, some were more cautious warnings that the valuation of Lulu is quickly running out of real estate.
"We see further opportunity ahead, as digital initiatives take hold and the int'l growth story continues. That said, valuation already reflects a lot of these prospects, so we remain Hold-rated," Jefferies analyst Randy Konik said. "Trading levels reflect growth ahead making current valuation fair."
Nonetheless, there are few stocks off to a hotter start on Thursday morning, justifying many who stood by the stock even as it lurched toward a lofty PE ratio of over 30.
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