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Lululemon Still In 'Warm-Up' Phase of Growth Story

NEW YORK ( TheStreet) -- Lululemon Athletica (LULU - Get Report) got a boost on Monday after Citigroup initiated coverage of the yoga apparel maker's stock, rating it at "buy."

Lululemon has "mastered a differentiated formula of functional, feminine, and versatile product which offers a strong consumer value despite high prices and appeals to mothers and daughters," Citi analyst Oliver Chen writes in a note on Monday, where he initiated coverage of the stock and set a 12-month share target price of $90.

"In our view, LULU is still in the 'warm-up' phase of its growth trajectory as it still has significant [North American] growth potential, global expansion opportunities, e-commerce initiatives, as well as adjacent category growth such as in the men's category, swing and dance apparel for pre-teens," Chen writes.

The analyst notes that lululemon's gross margin is impressive compared to other athletic apparel makers, such as Under Armour, at 54% and 48%, respectively.

Shares were rising 3% to $71.60 at last check.

Also see: Lululemon's Reaction to Yoga Pants Mishap: Brilliant Marketing

Also see: Williams-Sonoma's Next Big Thing

Lululemon is more than just a brand, it's a way of life and the fact that customers perceive the product as a premium product that they can't get anywhere else, gives the company a leg up in an increasingly competitive and hot niche retail area of athletic apparel especially vs. industry competitors Nike (NKE - Get Report), Under Armour (UA - Get Report), or The Gap's (GPS - Get Report) Athleta.

Indeed, Macy's (M - Get Report) announced on Monday plans to expand its active apparel business to attract more millennial customers. The company is planning to further expand its product assortment, which will include Nike, VF Corp.'s (VFC) The North Face, Under Armour, Calvin Klein Performance and Ideology, to more stores this fall and the addition of Helly Hansen in select locations.

One of the biggest challenges to lululemon's growth story is that it remains without a CEO. Its current chief executive Christine Day announced her resignation in June. However, Chen believes that the company could benefit from a new leader's perspective.

"Plans have been laid for the next five years and a vision set for the next 10. Now is the right time to bring in a CEO who will drive the next phase of lululemon's development and growth," Day said in June. "I will continue to actively lead the organization while the board searches for a new CEO, and will work to ensure a smooth transition."
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GPS $22.63 -1.52%
LULU $65.54 -1.77%
M $39.49 -1.05%
NKE $59.52 -0.12%
UA $42.73 -2.31%


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