Athleisure-wear maker Lululemon Athletica Inc. is better positioned to stay above the current clothing discount frenzy and is gaining popularity among younger consumers, Piper Sandler analysts said Tuesday in upgrading the stock.
Analysts at the investment bank Lululemon
to the equivalent of ‘buy’ from ‘hold’, and raised their price target on the stock to $350 from $320. Shares were up 2% to $295.96 on Tuesday.
“In what we view as a tougher and more uncertain consumer environment, we want to point investors to quality,” the Piper Sandler analysts said in a research note. “We continue to believe LULU has best-in-class product innovation which should drive demand, and we do not believe LULU will have to react as much as peers to the more intense promotional environment.”
Their own analysis of Lululemon’s promotions — or markdowns on clothing — showed “relatively flat promotional intensity,” even as other retailers and brands, such as Nike Inc.
drop prices in an effort to make clothing more attractive to customers. More customers this year have turned away from purchases of goods like apparel, after rising prices forced them to give priority to essentials.
For more: Nike execs predict cheaper clothing for at least the rest of the year
And according to Piper Sandler’s survey of younger customers, Lululemon became teenagers’ second-favorite clothing brand this fall. Nike
still held the No. 1 spot by a wide margin.
The Piper Sandler analysts also said that sales for Lululemon’s jackets and other outerwear could benefit if this winter is colder than last year’s. In the Northeastern part of the U.S., they said, last October was the warmest in more than 60 years. The analysts said that in-stock levels for those products had improved, after supply-chain delays last year.
Many retailers and clothing brands have suffered this year, as lower demand forces stores to cut prices to clear bloated inventories. Nike, during its most recent round of earnings last month, said it expected its rivals to plow ahead with markdowns through at least the end of the calendar year, and said its own discounts would hit margins for the rest of its fiscal year.
Last week, Levi Strauss & Co.
cut its financial forecast, citing the stronger U.S. dollar and a more anxious consumer. But it also said the “the strength of the brand has equated to pricing power.”
Read also: Levi Strauss cuts annual earnings and sales forecast as economic fears grow
Of the 25 analysts tracked by FactSet that had a rating on Lululemon, 17 rated it as a buy or the equivalent of a buy.
Nike rose 1.5% on Tuesday. Levi Strauss gained 2.4%. Lululemon stock is down 23% so far this year. By comparison, the S&P 500 index
is down 24% over that time.