Analysts Preview Lululemon Ahead Of Earnings

Analysts are eager to preview Lululemon Athletica (NASDAQ: LULU) before the company reports first quarter 2014 results on Thursday, June 12, before the markets open.

Lululemon's 1Q14 Guidance

First quarter guidance calls for flat c.c. comps, including eCommerce sales. The company expects revenue to come in between $377 and $382 million. Guidance calls for gross margin of 50-51 percent and earnings per diluted share of $0.31 to $0.33.

Margin Pressure Weighs Against Long-Term Growth

Deutsche Bank analyst Dave Weiner on Monday maintained a Hold rating on Lululemon and lowered the price target from $55.00 to $50.00 ahead of earnings. The analyst noted that the company has long-term growth potential, including international, men's and new product initiatives.

Despite optimism on Lululemon's growth, Weiner commented “we believe there is a lot of uncertainty on when comps will inflect positive. Furthermore, margins are under significant pressure this year from investments in brand, product, supply chain, and geographic expansion, which will meaningfully limit profit flow-through…likely even in to 1H of next year. Though LULU stock is off 7.9% since it last reported, valuation remains unattractive (~24x FY15 & 20x next year), given little visibility on when ~25% EPS growth might resume.”

Deutsche Bank kept EPS estimates of $0.33, in-line with $0.31-$0.33 plan and ahead of consensus at $0.32.

Trends to “Reflect Ongoing Product Refinement”

Analyst Andrew Burns, from D.A. Davidson & Co., expects an in-line first quarter. The analyst reiterated a Buy rating and lowered the price target from $64.00 to $56.00 to reflect “heightened” risk in the retail sector.

D.A. Davidson & Co remarked, “With LULU shares off 47% from its 52-week high, the near-term challenges facing the company appear to be largely absorbed into investor sentiment. We believe most investors view 1H14 as a transition period. By the fall, we expect LULU's recent product initiatives (quality and assortment improvements) and management changes can begin to drive improved sales trends. By 2015, the international growth potential should become more tangible and LULU has potential to restore its former luster. Long term, LULU has the brand power and business model to remain a top brand in the fast growing, yet increasingly competitive, yoga/athletic apparel category.”

Burns expects first quarter EPS and revenue to come in at $0.31 and $380 million, respectively. The analyst's estimates are slightly below consensus of $0.32 and $382 million.

Lululemon will host a 9:00 a.m. (PT) conference call on June 12.

Shares of Lululemon closed at $44.99 on Monday, up 1.28 percent.