Lululemon Athletica Inc. Stretches to $100

Despite operating without a CEO, Lululemon Athletica Inc. (NASDAQ:LULU) continues to exceed expectations, which should mean triple digits soon enough.

| More on:

Last September, I’d called Lululemon Athletica, Inc. (NASDAQ:LULU) the best Canadian retail stock to hold for the next 10 years. Since then, former CEO Laurent Potdevin resigned due to an inappropriate relationship at the company.

Lululemon is one of those businesses that always seems to be facing some kind of internal stress that holds it back from being a true retail success story.

However, thanks to a very specific corporate culture, no person, regardless of their position, is bigger than the company itself. Potdevin had to go, despite doing a good job getting Lululemon back on its feet after a slew of quality control issues rocked the athleisure company in the waning years of former CEO Christine Day’s leadership.

Lululemon has a deep bench, which gives Executive Chairman Glenn Murphy the luxury of time while recruiting its new chief executive. Originally rumoured to be former Ralph Lauren Corp., CEO Stefan Larsson, who’s had a hand in growing several global retail businesses, Lululemon’s fourth-quarter results suggest Murphy needn’t rush the process.

At the end of the day, what retail veteran wouldn’t want to run what is arguably one of North America’s most successful brands?

Analyst’s tune changes slightly

Also, last September, I took Canaccord Genuity Group Inc. analyst Camilo Lyon to task for reiterating his sell rating on LULU stock, suggesting he was barking up the wrong tree.

I’ve seen all the arguments why Lululemon’s business is about to take a tumble.

Denim is hot, people are spending less on their yoga pants, competitors such as Athleta are taking market share, the big players such as Nike Inc. and Under Armour Inc. will wipe the floor with them, etc.

However, after Lululemon came out with strong Q4 2017 earnings March 27 that included a 44% increase in online sales, an 18% increase in revenue, a 30% increase in operating profits, and a 33% increase in adjusted diluted earnings per share, handily beating the analyst estimate by six cents.

Lyon, who now has a hold rating on LULU stock, was a little less negative after the latest earnings, suggesting the company did a better job with its merchandise assortment in the fourth quarter.

“An improved product assortment (particularly in outerwear and tops) drove a +LDD [low double-digit increase] comp in women’s with men’s maintaining mid-teens [increase in] comps,” Lyon said in a note to clients. “Furthermore, traffic turned positive in Q4 and accelerated further in Q1.”

Interestingly, while Lyon raised his 12-month price target to $85, he still isn’t exactly jumping on the LULU bandwagon.

“We view the risk/reward as balanced, particularly without a CEO in place,” wrote Lyon. “While LULU certainly appears to be hitting on all cylinders, we can’t ignore the fact that at least once per year since 2014, it has hit a speed bump that has derailed its momentum and caused it to lower guidance.”

Next stop, $100

The uncertainty around the CEO position definitely hurt LULU stock leading up to its March 27th announcement.

However, it’s clear margins are moving higher as a result of a new and improved online presentation, which leads me to believe the analyst’s negative view of the company’s past failures suggests he ought to spend less time looking in the rear-view mirror and more time focusing on a business that’s expected to generate $4 billion annually by 2020.

Whomever Lululemon hires to continue growing the company will bring the latest headwind its stock faces to a rest — and you can sure $100 will come in short order thereafter.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in any stocks mentioned. David Gardner owns shares of Under Armour (C Shares). Tom Gardner owns shares of Under Armour (C Shares). The Motley Fool owns shares of Nike and Under Armour (C Shares). Under Armour is a recommendation of Stock Advisor Canada.

More on Investing

Asset Management
Investing

2 Soaring Stocks to Hold for the Next 20 Years

These two stocks are poised to continue outperforming the broader equity markets.

Read more »

Hand Protecting Senior Couple
Retirement

These 2 Dividend ETFs Are a Retiree’s Best Friend

These two dividend ETFs could provide retirees with a diversified and stable income stream, while providing some price appreciation.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Tech Stocks

Shopify: A Must-Have Growth Stock for Your TFSA Now (and the Next 10 Years)

Shopify (TSX:SHOP) stock isn't just a top growth company, it's a titan worth owning in your decades-long TFSA fund.

Read more »

Investing

Have $1,000? Here Are the Best Stocks to Buy Right Now

These TSX stocks have solid growth potential and will likely deliver above-average returns in the long term.

Read more »

cloud computing
Tech Stocks

Best Stock to Buy Right Now: Manulife vs CIBC

Want the best stocks? These two are certainly the best options. But which is the better buy?

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Earn $2,000 in Passive Income in 2025 With Less Than $51,000 in Savings

You can invest in Canadian high yield stocks via the Vanguard FTSE Canadian High Yield Dividend ETF (TSX:VDY).

Read more »

Asset Management
Investing

Where Will Restaurant Brands International Stock Be in 1/3/5 Years?

Let's dive into where Restaurant Brands (TSX:QSR) could be headed over the near to medium term, shall we?

Read more »

profit rises over time
Tech Stocks

4 Reasons to Buy Constellation Software Stock Like There’s No Tomorrow

Constellation Software stock continued its climb upwards after recent earnings, and this only adds to its appeal.

Read more »