Lululemon (LULU) Bulls Eager to Look Past Near-Term Quality Issues

March 21, 2013 2:08 PM EDT Send to a Friend
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Earlier this week Lululemon Athletica Inc. (NASDAQ: LULU) announced that a shipment of black luon had a degree of sheerness in product that did not meet standards. The pants were described as being see-through, a problem that was only discovered after users put the yoga pants through paces.

This morning Lululemon reported Q4 results that topped estimates. However, Q1 & FY guidance was impacted by the quality issue and fell short of consensus.

Commenting on developments, analyst Betty Chen of Wedbush made positive comments on the company's efforts to preserve brand equity and customer loyalty.

"“We believe management has taken appropriate steps to correct black Luon sheerness issues in the NT while investing in LT QA measures to ensure quality and customer loyalty."

17 percent of the pants are expected to be affected and management noted that product that is on the water and in the factor is suspected of having similar issues to March 1st shipment that was recalled.

With a broader view, investors are very interesting in Lululemon Athletica's plans for new product rollouts and international expansion.

"Management plans for additional capsules in swim and cycle/commute following LY’s success and will test golf and tennis in athletic and slim fit that could broaden addressable market in men’s. In addition, the team continues to 'seed 10- 15 markets' in Asia & Europe along with planned HK opening(s) in the next ~12 months after highly successful grassroots events in Asia and additional showrooms in London," said Chen.

Shares of LULU are higher by over 1 percent on Thursday.

Wedbush today maintained an Outperform rating on Lululemon Athletica Inc. with a price target of $75.00.

For an analyst ratings summary and ratings history on Lululemon Athletica Inc. (NASDAQ: LULU) click here. For more ratings news on Lululemon Athletica Inc. click here.

Shares of Lululemon Athletica Inc. closed at $63.88 yesterday.


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