On Thursday, Piper Sandler reaffirmed its Overweight rating on Lululemon Athletica Inc. (NASDAQ: NASDAQ:LULU) with a consistent price target of $560.00. The firm's stance comes in light of the observed changes in the company's markdown strategies and the subsequent consumer responses.
The analyst from Piper Sandler noted that a shift in Lululemon's markdown cadence could be the reason behind softer year-over-year January trends. Despite this, there is confidence in the strong underlying demand for the Lululemon brand. Comparisons were drawn to the previous year when Lululemon had to revise its fourth-quarter gross margin guidance during the ICR Conference due to consumer reactions to markdowns, which appeared to peak in mid-January.
This year, however, the promotional activity seems to have peaked around Black Friday and again around Christmas, with significant moderation in January compared to the previous year. The firm believes that the overall promotions are healthy and should positively impact gross margins. It is suggested that Lululemon took advantage of the promotional demand earlier in the quarter, which may have led to challenging comparisons in January.
Piper Sandler's thesis is supported by monthly credit card data trends, which appear to align with the observed markdown patterns. Furthermore, the firm expressed optimism regarding Lululemon's recent product launches, especially in the bags category. As a result of these factors, Piper Sandler is raising its estimates for Lululemon for the year 2024.
InvestingPro Insights
Piper Sandler's positive outlook on Lululemon Athletica Inc. (NASDAQ: LULU) is bolstered by several key metrics and insights from InvestingPro. Notably, 19 analysts have revised their earnings upwards for the upcoming period, reflecting a consensus that the company's financial prospects are on the rise. This optimism is mirrored in Lululemon's robust revenue growth, with the last twelve months as of Q3 2024 showing a 23.01% increase, highlighting the brand's expanding market presence and consumer appeal.
Moreover, Lululemon's financial health is underscored by its liquid assets surpassing short-term obligations, ensuring the company has a comfortable liquidity cushion to manage its operations and investments effectively. This is a critical factor for investors considering the company's capacity to sustain and grow its business.
From a valuation standpoint, Lululemon is trading at a high earnings multiple, with a P/E ratio of 58.16 and an adjusted P/E ratio for the last twelve months as of Q3 2024 at 43.98. While this may suggest a premium market valuation, it also indicates high market expectations for future earnings growth, which is supported by the company's strong performance indicators.
For those investors looking to delve deeper, there are additional SFY24 InvestingPro Tips available for Lululemon, providing a more comprehensive analysis of the company's financials and market position. With a 10% discount on a 2-year InvestingPro+ subscription using the coupon code SFY24, or a 10% discount on a 1-year subscription with code SFY241, investors can access an extensive array of insights to inform their investment decisions.
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