Analysts Predict Another Strong Quarter for Lululemon Athletica

The stench of seaweed won’t linger long at Lululemon Athletica Inc. (LULU), according to analyst Tal Woolley of RBC Capital Markets, who is predicting another strong quarter for the trendy yoga retailer.

“Based on store checks, we continued to find limited quantities of select items in store,” he wrote in a note to clients.

That is not a surprise given management’s commentary and lean inventory levels, he said, and should bode well for gross margins this quarter.

“The garments’ form flattering silhouettes will continue to drive customers, more so than any one particular fabric enhancement,” he said.

A minor scandal that erupted earlier this month disputing whether seaweed was actually a fabric ingredient of the company’s VitaSea line will have little impact on consumer acceptance of the brand, he predicted.

Mr. Woolley is forecasting a doubling of earnings per share over last year, to C$0.08 from C$0.04, assuming very robust sales growth of 33% to 35% at stores open for more than a year, and a 53.9% gross margin rate.

He rates the shares “outperform” – above average risk – with a price target of C$41.