NEW YORK ( TheStreet) -- Lululemon Athletica ( LULU) 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), Under Armour ( UA), or The Gap's ( GPS) Athleta. Indeed, Macy's ( M) 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."
Chen also believes that the company's luon pant mishap earlier this year was short-term glitch. Despite product quality concerns, "the company has implemented more stringent testing since the 'transparent' pants situation," the note says. The company was forced to pull the popular pants in March after complaints that the pants were too sheer. It restocked shelves with its black luon yoga pants in June. Investors will hopefully get an update to the CEO search and luon-pant ongoing affects when lululemon reports second-quarter earnings on Thursday. Analysts, according to Thomson Reuters, expect the company to post earnings of 35 cents a share, 10% lower than the year-earlier period. Revenue is expected to rise 21% to $343 million. Janney Capital Markets analysts Adrienne Tennant and Gabrielle Carbone write in a research note on Monday that with the luon pant replenishment occurring earlier than expected in late May to early June (rather than early August), it is possible that second-quarter sales have benefited, however lululemon was not likely to escape the weak mall traffic affecting all retailers this summer. Tenant and Carbone rate the company at "buy." "We continue to believe LULU remains an attractive longer-term, global growth story; however, we believe meaningful contribution from new regions of growth are still several years away," the Janney note says. "In the near-term, we expect the stock to be volatile, and potentially range-bound, as the company seeks to find a new CEO, fill other open positions, pressures the fixed expense structure with investments for growth, and works to reaccelerate comp and margin expansion." "We are maintaining our buy rating on a longer-term basis, but believe that consensus estimates should be reset to allow the company room to fund the proper infrastructure and foundation from which to grow," the note says. -- Written by Laurie Kulikowski in New York. Follow @LKulikowski To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com. >To submit a news tip, email: firstname.lastname@example.org. Follow TheStreet on Twitter and become a fan on Facebook.