Credit Suisse Defends Lululemon, Sees $64 Per Share Price

• The share price of Lululemon Athletica inc. (NASDAQ: LULU) has declined 23.55 percent over the past three months, with the shares trading close to their 52-week low on November 17.
• Christian Buss of Credit Suisse has reiterated an Outperform rating and price target of $64 on the company.
• Buss mentioned that an analysis of more than 7,000 SKUs on Lululemon’s website indicated robust sales momentum at the beginning of Q4.

Analyst Christian Buss explained that the SKU analysis suggested “reduced discounting activity, higher SKU count for women's and men's apparel, and sequentially stable in-stock rates.”

The markdown intensity rate for November decreased, both sequentially and year-on-year, “suggesting that LULU may have begun to rationalize their 2Q inventory build,” Buss said.

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Given the increased SKU count and lack of increase in markdown activity, there appears to be higher potential for gross margin expansion.

In addition, according to the Credit Suisse report, “Given the increased promotional activity across retail heading into the holiday period, LULU's ability to maintain price integrity is an encouraging sign and suggests successful sell through of new product.”

Apart from a lower percentage of apparel being on sale in November, as compared to a year ago and to September, in-stock rates have increased on a year-on-year basis. However, given that the in-stock rates are within the two-year average range, Lululemon is likely to have been able to control these rates across product categories, despite higher inventory.

Women’s in-stock rate reached a two-year high, which Buss believes could be due to “the greater assortment of product offered online in both higher-risk color product and core black product.”