“A coiled spring”: LULU stock is a buy, Citi says

“A coiled spring”.

That’s how Citi analyst Paul Lejuez describes Lululemon Athletica’s (Lululemon Athletica Stock Quote, Chart, News, Analysts, Financials Nasdaq:LULU) prospects in China, which the analyst says will contribute to overall outperformance.

On December 7, LULU reported its Q3, 2023 results. The company posted EPS of $1.96 per share on net revenue of $2.2-billion, a topline that was up 19 per cent over the same period in 2022.

“This was another strong quarter for lululemon as our innovative product offerings and community activations continued to powerfully resonate with our guests globally,” CEO Calvin McDonald said. “As we enter the holiday season, we are pleased with our early performance and are well-positioned to deliver for our guests in the fourth quarter. I am energized by the significant opportunities ahead, and would like to thank our incredible teams around the world for their continued passion and commitment to our brand.”

As reported in The Globe and Mail, Lejuez Friday maintained his “Buy” rating and price target of (US) $520.00 on LULU stock.

The analyst said all this considered this was an impressive quarter, with more to come.

“Stepping back, 3Q highlights LULU’s position as a market share winner despite a choppy macro backdrop,” he said. “With the brand healthy in the U.S. and China a ‘coiled spring’ with several years of outsized growth ahead, we believe LULU’s long-term growth story remains attractive.

The analyst broke down a number of factors he feels will contribute to overperformance.

“Investment highlights that support our Buy rating include: (1) inventory to sales gap narrowed (with limited markdown pressure); (2) U.S. is positioned to grow low double digits-plus in F23, underscoring LULU’s brand strength/momentum in its largest market; (3) China is poised to rapidly grow in F23 and become a much more meaningful long-term growth driver (just 8 per cent of sales in F22 going to 22 per cent by F27); and (4) we model 20-per-cent-plus EPS growth annually through F27 as LULU unlocks its global growth potential (and it is not ‘over-earning’ despite doubling sales from 2019 to 2022),” Lejuez added.