Lululemon soars on analyst upgrade

Goldman Sachs thinks the fitness-wear company's revenue has room to grow.

By Kim Peterson Jan 4, 2012 3:26PM
Image: Yoga (© DEX IMAGE/Getty Images/Getty Images)The gyms are packed and new year's resolutions are being attacked with enthusiasm. Goldman Sachs (GS) is getting into the mood as well, adding fitness-wear retailer Lululemon Athletica (LULU) to its list of top stocks.

Lululemon jumped more than 8% in afternoon trading Wednesday to top $51.

Goldman named the retailer to its Americas Conviction List, and analyst Michelle Tan placed a six-month price target of $64 on the stock. Tan thinks the company can nearly quadruple its revenue through expansion in North America -- and that doesn't even count overseas growth.

Lululemon already has sky-high annual sales growth of more than 30%. The company "offers one of the most compelling stories in retail, with continuing brand momentum," Tan wrote.

And while it may seem unbelievable that Lululemon's $98 yoga pants are in high demand, that was a problem the company faced last year.

Lululemon wasn't able to produce enough clothes to meet demand, raising investor concerns about its inventory levels. The company had to buy more air freight to supply its stores last spring.

But then a few months passed, and the company was punished for bulking up its inventory too much. Investors were nervous about the dramatic growth in inventory before the fourth quarter, while others said this was a clear bulking up for holiday sales.

At any rate, the retailer needs to get a better grasp of its inventory, and Tan thinks it has done just that. She thinks the retailer has a "substantial runway" ahead.
Tags: GSLULU
2Comments
Jan 5, 2012 1:36AM
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PaolaChicago, my friend,  YOU should have stayed single.   My wife makes $600,000 a year running a business.  SHE can buy whatever she wants to and its none of my business since she's smart with her money.  If she wants $200 tights, then fine.  She'd only buy 1 or 2 pair a year anyway.
Jan 4, 2012 10:29PM
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This store, always to be found in high-rent locations, is grossly overpriced. It's customer base is women with more money than sense.
It must be nice, as a retailer, to be able to get a customer demographic like that, but how much of what they pay goes to high retail rents? The landlords are laughing all the way to the bank.
If I caught my wife buying stuff at Lululemon, it would be grounds for divorce.
My question is: If women with lots of money are stupid enough to buy overpriced stuff, how come they had lots of money in the first place?
My rule of thumb is: Never, EVER patronize retail locations in high rent locations.
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