On Thursday, a Citi analyst reaffirmed their positive stance on Lululemon Athletica Inc. (NASDAQ:LULU), maintaining a Buy rating and a $520.00 stock price target for the company's stock.
The endorsement comes with expectations of a fourth-quarter earnings per share (EPS) surpassing consensus estimates, forecasting $5.05 against the anticipated $5.00. This projection is attributed to improved gross margins, credited to better freight flow-through.
Lululemon has shown notable growth in fiscal year 2023, even when compared to challenging multi-year benchmarks. Still, a deceleration in the United States business is expected, with growth projected to moderate to mid-single to high-single digits in fiscal year 2024. This forecasted slowdown is likely to be a topic of interest during the upcoming earnings call.
Despite the anticipated deceleration in the U.S., the analyst predicts that management will set the fiscal year 2024 guidance to align with the company's long-term strategy.
This includes targeting mid-teens top-line growth and a slight increase in EBIT margins, which would suggest an EPS guidance range of $14.20 to $14.35, closely matching the consensus of $14.29. Growth is expected to be more pronounced in international markets, especially China.
Current industry data indicates a weaker start to the first quarter, leading to the expectation that management will likely set first-quarter guidance below consensus. Acknowledging the challenging scenario heading into the fourth-quarter EPS report, the analyst's outlook remains cautiously optimistic.
The strength of Lululemon's brand and its momentum in international markets underpin the favorable long-term risk/reward balance highlighted by the analyst.
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