- Telsey Advisory Group analyst Dana Telsey reiterated an Outperform rating on the shares of Lululemon Athletica Inc. LULU, maintaining the price target of $425.
- The company is scheduled to report 1Q23 results after the market close on Thursday, June 1.
- The analyst notes that lower air freight costs are expected to be the primary driver of gross margin expansion (planned up 190-320 bps Y/Y) in the first quarter.
- At the end of 4Q, Lululemon’s inventory was up 49.8% Y/Y to $1.447 billion, vs. the topline growth of 30.2%.
- The analyst expects the company’s inventory growth to moderate to 30%-35%, exiting the first quarter.
- By 2H23, the analyst mentions that inventory growth is anticipated to align with topline growth broadly.
- In the first quarter, the company expects to open 5-10 net new stores, and looking ahead to the full year, the company anticipates opening 45-50 net new stores in FY23.
- Based on the above, the analyst expects company to register an EPS of $2.00 vs. $1.48 last year. Total sales is expected to be up 19.8% Y/Y to $1.932 billion.
- Below the topline, the analyst looks for 320 bps of gross margin expansion to 57.1%, 60 bps of operating expense deleverage Y/Y to 38.4% of sales.
- Taken together, the analyst expects operating margin expansion of 260 bps to 18.7% in the quarter.
- Price Action: LULU shares are trading lower by 0.61% to $340.24 on the last check Friday.
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