FBR’s Susan Anderson and Andrew Schmidt like Lululemon Athletica’s (LULU) brand and culture but worry about its product mix and competition. They explain:
Bloomberg News We are initiating coverage of lululemon athletica inc. with a Market Perform rating and a 12-month price target of $40 per share. We believe lululemon has a significant opportunity to increase revenue via domestic and international store and e-commerce growth, as well as men's, women's, and kids’ product expansion. Yet, we believe that the key to future profitability is the product engine revamp, where lululemon plans to design more innovative, on-trend, and differentiated products. While we are somewhat confident in lululemon's ability to grow revenue, we believe it may be difficult to return to historical peak operating margins. We acknowledge
that the company has a good brand that resonates with consumers, but we cannot ignore the rapidly growing presence of competitors that are aggressively expanding into women's activewear (Nike (NKE), Under Armour (UA), Athleta, L Brands (LB), Gap (GPS), etc.) and are well established in men's. We think that the growing domestic and international markets will provide growth opportunities (international growth acceleration could take three to four years), but increasing competition may necessitate lower price points (especially in the athleisure area, where lululemon has increased its focus). We remain on the sidelines and look to 2015 for evidence that the systems implementation, revamped product design process, and new products will increase revenue and begin to expand margins.
Shares of Lululemon have gained 2.3% to $43.76 at 3:07 p.m., while Nike has dropped 1% to $93.70, Under Armour has risen 1.1% to $67.02, L Brands has fallen 1.2% to $75.40 and Gap has advanced 2.5% to $38.84.
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