UBS Previews Lululemon Earnings: Concerned With 'Very Tough' Comps, Slower Athletic Industry Trends

UBS analysts, Michael Binetti and Janice Ong, were concerned with very tough comparisons and slower athletic industry trends to have its effect on Lululemon Athletica inc. (NASDAQ: LULU) ahead of its quarterly numbers. As a result, it maintained a Neutral rating and a price target of $69.00 on the shares of the company.

One of the questions haunting the analysts is whether Lululemon Athletica could continue to deliver SSS above the decelerating industry trends. The two analysts pointed out that the company's PE has expanded by 4 – 5 points YTD following the fourth quarter SSS trend that accelerated whereas the industry slowed.

Binetti and Ong said, "LULU has reiterated confidence that the long-awaited margin expansion story is finally poised to accelerate in '16 (Consensus is forecasting GMs +70bp in '16). While LULU's SSS trends have not correlated w/ retail industry trends lately, decelerating industry trends (even for strong competitors like NKE) leaves us a bit concerned that LULU's recent +HSD/LDD SSS can continue through '16 to support the recent P/E expansion."

UBS analysts also believe that the brand momentum is solid whereas LULU would lap the re-launch of its core women's bottoms product in the third quarter potentially leaving less upside to its already solid +7 percent SSS estimated for the fiscal year 2016.

The brokerage also thinks that GM & Inventory Trajectory is Key for LULU's Stock in the Near Term. Despite a very tough US holiday, LULU delivered +11% SSS in fourth quarter and reiterated guidance for 2016 GMs to expand. The analysts said that they expect their 2QE EPS of $0.39 based on +25bp of GM expansion.

The stock traded 0.79 percent down on Tuesday.