lululemon athletica inc.

LULU : NASDAQ : US$69.84
Target: US$90.00

lululemon athletica Inc. is a designer and retailer of technical
athletic apparel operating owned retail stores primarily in North
America and Australia. The company offers a range of
performance apparel and accessories for women, men and
female youth. Its apparel assortment, including items such as
fitness pants, shorts, tops and jackets, is designed for healthy
lifestyle activities like yoga, running and general fitness.
All amounts in US$ unless otherwise noted.

Consumer & Retail — Footwear and Apparel
Investment recommendation
We expect LULU to report solid Q3 results on Thursday, December 12th
with upside to our 6% comp/41c EPS consensus estimate likely. Recall
we met management with two-and-a-half weeks left in Q3, and our take
from those meetings was that product flow to stores had begun to
improve ahead of schedule as the onboarding process of a second mill
was progressing at a pace faster than expected. We expect this stepped
up pace of production to modestly help Q3 comps, but more likely boost
Q4 comps as the timing of deliveries seems to be pacing with seasonal
demand. Also, gross margin could surprise to the upside as we believe
clearance levels moderated through the quarter and into Q4. In our
opinion, Q3 should be the quarter in which concerns around demand
and competition are laid to rest. We reiterate our BUY and $90 target.
Investment highlights
 Given still choppy mall traffic trends, we are not anticipating an
update to Q4 HSD comp guidance. That said, our checks suggest
sales trends have improved in early Q4 with the arrival of new
seasonal products (e.g. the scuba hoodie line), and thus makes the
decelerating two-year comp guidance look highly conservative.
 As for the CEO search, we are not expecting any definitive news
until after the holiday season, likely making an announcement a
February event.
Our $90 target is a blend of 35x 2014E EPS/20x EBITDA/DCF.


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