The Upside And Downside Case for lululemon athletica (LULU) - Cowen

Cowen analyst, Oliver Chen, believes that Lululemon Athletic's (NASDAQ: LULU) improved supply chain should drive margin upside. However, the analyst discusses the base case and both upside and down side scenarios. No change to Outperform rating or $76 PT.

New product, integrated marketing, and online momentum combined with loyalty, a healthy high-end customer demographic, and athleisure fashion trends will yield traffic, improving conversion, and comps. Traffic is improving & our channel checks indicate better product in-stock levels & positive customer response to newness..

Base case:

-Traffic trends continue to modestly improve and store comps subsequently maintain recent positive turn

-New product flows remain improved from a fashionable versatility perspective versus prior assortments

-Growth drivers consistently deliver positive comps and top line.

Upside Scenario

-Traffic and conversion rates increase more than expected, new product is received with better-than-anticipated enthusiasm

-Growth in men's accelerates and the male customer demographic reaches higher loyalty levels

-Gross margin upside is realized as supply chain improvements become tangible

Downside Scenario

-Newly designed product is not accepted by customers, traffic falls off, and markdowns become necessary

-Men become increasingly disinterested in the lululemon brand and growth is curtailed

-The brand fails to translate in Europe and Asia, resulting in strategic working of international strategy

For an analyst ratings summary and ratings history on Lululemon Athletica Inc. click here. For more ratings news on Lululemon Athletica Inc. click here.

Shares of Lululemon Athletica Inc. closed at $66.72 yesterday.

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