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The Ratings Game: Lululemon maintains its flow with shares hitting a record despite supply chain challenges

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Upbeat analyst groups raised their price targets for Lululemon Athletica Inc. after the company, known for its yoga gear, reported earnings that blew past expectations.

Wells Fargo moved its price target to $410 from $335 and maintained its equal weight stock rating.

“Gross margins were strong, store productivity returned to 2019 levels, digital momentum continued against tough compares, quarter-to-date momentum remains strong, and Lululemon’s own agile supply chain is allowing them to largely meet demand,” analysts wrote, noting that the company also raised its guidance and is now expected to exceed a previous $6 billion target. 

“All in, we found very few holes to pick at in Lululemon’s print.”

Read: Athletic trends have given DSW parent Designer Brands a boost but Nike departure looms

Stifel raised its price target to $500 from $445 and maintained its buy stock rating.

And Cowen lifted its price target to $520 from $476. Analysts maintained their outperform stock rating.

“Management expressed significant confidence in the pace of its business and being in the early innings of its growth potential across product lines, activities, categories, and regions,” analysts said.

“Consumer response to its materials innovation remains broad based, supporting its premium positioning and potential for ongoing margin expansion.”

The earnings results sent shares soaring 10.5% in Thursday trading, closing at a record for the stock of $420.71.

Lululemon
LULU,
+10.47%

stock has run up nearly 21% for the year to date, outpacing the S&P 500 index
SPX,
-0.46%
,
which is up 19.6% for the period.

Lululemon isn’t just riding a wave generated by the athleisure trend. The company has been able to overcome the supply chain challenges that have plagued many names across the consumer space. Wells Fargo notes that about 30% of Lululemon’s sourcing is from Vietnam, which has seen its manufacturing operations hit hard by COVID-19.

See: Foot Locker and Adidas join list of companies citing COVID-related supply chain challenges in Vietnam heading into the holiday shopping season

MKM Partners analysts say the results point to Lululemon as more than just a “pandemic play.”

“Lululemon’s 2Q was significantly better than we expected, owing disproportionately to both stronger store sales (with store productivity in line with 2019 levels),” analysts wrote, noting growth in e-commerce as well.

“And yet, sales were said to be held back by supply chain issues/delayed inventory. Equally impressive was a meaningfully more favorable gross margin, as higher air-freight was offset by significant fixed cost leverage and lower markdowns vs. 2019, as well as lower SG&A deleverage.”

MKM rates Lululemon stock buy with a $468 price target, up from $419.

JPMorgan also raised its price target to $500 from $450 in a note that maintains its overweight stock rating.

UBS took a more moderate tone, saying the stock price already accounts for the anticipated earnings growth. Analysts also say the Mirror acquisition will weigh on EBIT margins.

UBS rates Lululemon stock neutral with a $375 price target.

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