Lululemon Weathering the Tough Retail Season

Mar.30.09 | About: Lululemon Athletica (LULU)

Lululemon Athletica Inc. (NASDAQ:LULU) seems to be weathering the tough retail season, analysts say, and investors seemed to agree, pushing the company’s shares up 9% yesterday to $8.37.

“Lululemon is still exceeding the initial $750 sales per square foot target," Analyst Howard Tubin of RBC Capital Markets wrote in a note to clients, at a time when management is seeing more flexibility on rents.

Excess capacity in overseas markets has also helped the retailer secure more favourable pricing for fall and winter 2009 merchandise, he said. He maintained his outperform estimate and price target of $9 on the shares but cut his 2009 forecast to 52¢ from 57¢ and introduced a 2010 per share earnings estimate of 58¢.

"We continue to like the differentiated branding and the product, plus the square footage growth potential."

Paul Lejuez of Credit Suisse was less optimistic, saying Lululemon’s decision to take an impairment charge on closing one store in Texas, write down the assets of three others and back out of future leases. All of the stores were in the U.S., he said in a note to investors, “not a good sign for a growth concept.”

Further,

“while Lululemon remains one of the few growth concepts in retail, pressure on sales and margins in the near-term (along with the impairment charge taken on several stores) could cause some investors to question its long-term growth potential. With little visibility into fiscal 2009 and difficult sales productivity comparisons in this weak macroeconomic environment, we see few positive catalysts for the stock.”

He maintained his rating of neutral on the stock and target price of $9.