Lululemon stock surges as consumers keep coming back

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Lululemon is expanding its Vancouver headquarters, but you shouldn't expect much overall growth in the city's economy. BIV's Tyler Orton has your business news – May 26, 2023

Shares of Lululemon Athletica Inc soared 15 per cent in early trade on Friday, after the premium apparel retailer defied investor worries with a full-year outlook lift amid little pullback from consumers and a sharp rebound in China sales.

The rosy outlook comes in contrast to the general trend of U.S. retailers ranging from Macy’s to Dollar General warning of weak discretionary spending by American consumers.

At least 11 brokerages raised price targets on the company, with Piper Sandler hiking by the highest margin to $445, above the median of $424.

“We think (Lululemon) is one of the select brands continuing to drive outsized demand in this more challenging macro environment with innovation and newness,” said Abbie Zvejnieks, analyst at Piper Sandler.

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Lululemon’s first-quarter results also beat estimates as the company saw traffic across both its stores and online go up about 30 per cent.

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“Lululemon’s stores continue to be a key catalyst for customer retention and acquisition,” analysts at TD Cowen wrote in a note.

The company also reported a 79 per cent rise in sales in China, bolstered by the rollback of COVID restrictions. Lululemon’s exposure to China could be “a solid source of sales and margin upside for the rest of the year,” analysts at Barclays wrote in a note.

A loyal customer base has also given the company a leg up, helping it sell more of its popular products, such as the Align high-rise yoga pants which retails between $98 and $118, at full price, even amid an uncertain economy.

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“Lululemon is just very popular right now and seems to be immune from the slowing trend,” David Swartz, an analyst at Morningstar Research said.

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The company’s strong results also lifted shares of other athletic wear makers including Nike Inc and Athleta owner Gap Inc by 4 per cent and 3 per cent, respectively. Shares of European sportswear companies Adidas and Puma were also up.

(Reporting by Savyata Mishra and Aishwarya Venugopal in Bengaluru; Editing by Krishna Chandra Eluri)

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