A Lululemon Athletica store in New York, on Dec. 7, 2021.ANDREW KELLY/Reuters
Shares of Lululemon Athletica Inc LULU-Q soared 15 per cent in premarket trading on Friday, after the premium apparel retailer defied investor worries with a full-year outlook lift amid little pullback from consumers and a sharp rebound in China sales.
The rosy outlook comes at a time when U.S. retailers ranging from Macy’s to Dollar General have warned of weakening consumer demand as persistently high inflation squeezes spending.
At least 10 brokerages raised price targets on the with Piper Sandler increasing by the highest margin to $445, above the median of $424.
“We think (Lululemon) is one of the select brands continuing to drive outsized demand in this more challenging macro environment with innovation and newness,” said Abbie Zvejnieks, analyst at Piper Sandler.
Lululemon’s first-quarter results also moved past estimates as the company saw traffic across both its stores and online up about 30 per cent. The company also reported a 79 per cent rise in sales in China, bolstered by the rollback of COVID restrictions.
“LULU defied investor worries in Q1 as strong guest (store traffic) metrics continued into Q2,” Zvejnieks added.
The company’s strong results also lifted shares of other athletic wear makers including Nike Inc and Under Armour, which were up 3 per cent and 1.3 per cent, respectively, in premarket trading. Shares of European sportswear companies Adidas and Puma were also up.
Lululemon’s forward price-to-earnings multiple (P/E), a common benchmark for valuing stocks, is 26.35, higher than industry peers including Nike and Under Armour that have a P/E ratio of 25.40 and 13.79, respectively.
“Lululemon’s fundamentals are impressive on a standalone basis and especially relative to peers …(the)results further embolden our view that LULU can likely weather the macro headwinds more effectively than peers,” said Alex Straton, analyst at Morgan Stanley.