Company News

Lululemon soars on menswear, online push; inches into Nike turf

(Reuters) - Shares of yoga-pants specialists Lululemon Athletica Inc rose 15 percent on Thursday, with several Wall Street analysts raising their price targets for the company after a blockbuster fourth quarter.

Clothes are displayed in a Lululemon Athletica retail store in New York, U.S., March 30, 2017. REUTERS/Brendan McDermid

Wednesday’s results showed the Vancouver-based athleisure wear maker moving strongly into menswear, improving online sales and potentially challenging bigger rival Nike Inc on its home turf.

Lululemon forecast a strong 2019, said North America was doing well and reported a 37 percent jump in direct-to-consumer net revenue for the three months ended Feb. 3.

The company is reaping the benefits from heavy investments in boosting its online presence, opening more stores and refreshing its clothing line.

Online sales in China were particularly robust, rising more than 140 percent in the quarter, Chief Operating Officer Stuart Haselden said on a post-earnings conference call.

“Lulu captured the women’s market, that’s where they started with yogawear being their staple. Now they’ve evolved some of that collection into everyday-wear and that’s been really successful for them,” Jane Hali & Associates analyst Jessica Ramirez said.

Design oriented and fashion forward apparel also allow Lululemon to charge premium prices, Ramirez said.

Its success in North America, which contributes close to 90 percent of its business, stood out in a quarter where Nike, which introduced yogawear at the end of last year, fell short of Wall Street estimates for U.S. sales the first time in a year.

“There’s a lot of runway for us to continue to grow our men’s business,” Chief Operating Officer Stuart Haselden said in a post earnings conference call with analysts.

“We really believe that Lululemon can be a dual-gender brand, and that our men’s business can ultimately be as big as our women’s.”

Allen Adamson, co-founder of marketing consultancy firm Metaforce, said that Lululemon’s expansion into menswear and fitness will add to headaches for Nike and Adidas, already in a brutal war over market share in their core markets.

“They play in the same neighborhood but not on the same block,” he said. “Lululemon has one foot in the fashion world and one foot in athletics while Nike has both feet in athletics.”

Adamson said Lululemon could pose more of a threat to Nike in newer markets like China where consumers’ definitions of the circumstances in which they can wear fitness, athletics and sports clothing are shifting quickly.

At least 11 brokerages have raised their price targets on Lululemon’s stock, with Stifel raising it the most by $35 to $187. JP Morgan held the highest target price of $197.

“We expect Lululemon to continue to rise above others who sell active wear, through targeted and nuanced customer engagement both online and in stores,” Susquehanna analyst Sam Poser said.

Shares of the company were up 15 percent at $168.60 in mid-day trade.

Reporting by Arundhati Sarkar and Uday Sampath Kumar in Bengaluru; Editing by Bernard Orr