Wedbush Sees 20% EPS Upside for Lululemon (LULU) in '17

Wedbush analyst, Morry Brown, thinks Lululemon Athletica Inc. (NASDAQ: LULU) is poised for a breakout year after a tumultuous 2015 potentially generating $3.00 in EPS by 2017. The analyst is considerably higher than the street with an estimate of $2.77 compared with $2.53 consensus.

Margin claw back, set to take hold in 2Q. Following a final quarter of inventory overhang in 1Q16, LULU should begin to realize its targeted 300 bps of merchandise margin opportunity in 2Q16. They see the opportunity to reach 51% GM by 2017 (and expect LULU to discuss specific GM targets on its 4Q call).

Pricing power was not in doubt throughout 2015. In 3Q, the company raised prices in conjunction with its revamped women’s pant wall, and the category comped +27%, as consumer showed no price resistance at all. In 4Q, despite elevated inventory, full price items have accounted for 85% of sales, as LULU continues to keep markdowns in check. This compares to mallbased peer retailers that offered store wide promos (Lorna Jane) or significant markdowns (Athleta) to attempt to drive traffic. Early spring deliveries show further signs of the company’s ability to raise price on innovative offerings (e.g. reflective).

The PT goes to $72 from $65 based on a higher multiple, 22x (up from 20x) on the domestic business and a 40x multiple on the international business. No change to the Outperform rating.

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 $63.02 yesterday.

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