The company raised its full-year revenue outlook even after seeing strong sales in the quarter. But Lululemon missed on the bottom line, with earnings falling nearly 12% from a year earlier.
TheStreet's Jim Cramer said, "this was a good quarter," on CNBC's "Squawk on the Street." He said that the company's direct to consumer business was very strong, adding that the company is distinguishing itself with "very strong comps."
Some analysts also believe there is future upside for the stock, which saw small gains Thursday, trading around $72.
"LULU's comp strength and better-than-feared gross margin represent a rare point of comfort in a clearly challenging retail environment," said Nomura analyst Simeon Siegal in a research note Thursday. Siegal expects growth to continue, saying the company should hold its premium with top- and bottom-line expansion ahead. The Nomura analyst raised the price target to $75, up $3, maintaining a Buy rating.
Meanwhile, the inventory reduction plan and the "big gross margin beat" had Oppenheimer analyst Anna Andreeva raising her price target to $80. Andreeva reiterated her Outperform rating in a research note Wednesday, adding that she prefers lululemon over Under Armour (UA - Get Report) , where the valuation is much more "lofty for flattish operating profitability."
But analysts at BMO Capital Markets do not have as rosy an outlook for the athletic-apparel maker, but did not downplay lululemon's strong quarter. In a research note Wednesday, the analysts estimated that a primary driver of growth will be the inventory reduction this year. Furthermore, they expect gross margin to continue to build in the second quarter and through the rest of 2016, as selling, general and administrative expenses are "expected to deleverage significantly in 2Q16 as LULU invests in its supply chain system."
They believe that the "current valuation already discounts future outperformance," therefore, they maintained their Market Perform rating with a price target of $64. They also lowered their 2016 earnings estimate $0.10 to $2.09 a share.
BMO analysts say lululemon is "priced for perfection," and Cramer is bullish on the stock as an earnings play. He also said that the company has a powerful brand that can't be destroyed by its mall-based location as other mall retailers struggle.