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

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

money goes up and down in balance
Investing

Unveiled: 2 Must-Watch Stocks for Your TFSA Before 2025

Value-conscious TFSA investors should consider Bank of Nova Scotia (TSX:BNS) and another great dividend pick.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »

how to save money
Dividend Stocks

Got $1,000? The 3 Best Canadian Stocks to Buy Right Now

If you're looking for some cash flow from your $1,000 investment, these are the ideal investments to make.

Read more »

Data center servers IT workers
Tech Stocks

Better Buy: Shopify Stock or Constellation Software?

Let's dive into whether Shopify (TSX:SHOP) or Constellation Software (TSX:CSU) are the better options for growth investors in this current…

Read more »